Key considerations as Allied develops its strategy for disposing of the case are the probabilities associated with John’s response to an Allied counteroffer of $400,000 and the probabilities associated with the three possible trial outcomes. John will accept a counteroffer of $400,000 is 0.10, John will reject the counteroffer of $400,000 is 0.40, and John will make a counteroffer of $600,000 is 0.50. If the case goes to court, they believe the jury will award John damages of $1,500,000 is 0.30, award John damages of $750,000 is 0.50 and the probability the jury will award John nothing is 0.20.

Question

Key considerations as Allied develops its strategy for disposing of the case are the probabilities associated with John’s response to an Allied counteroffer of $400,000 and the probabilities associated with the three possible trial outcomes. John will accept a counteroffer of $400,000 is 0.10, John will reject the counteroffer of $400,000 is 0.40, and John will make a counteroffer of $600,000 is 0.50. If the case goes to court, they believe the jury will award John damages of $1,500,000 is 0.30, award John damages of $750,000 is 0.50 and the probability the jury will award John nothing is 0.20.

A Decision strategy that allied should follow if they decide to make John a counter offer of $400,00

Answer 1

To determine the decision strategy that Allied should follow if they decide to make John a counteroffer of $400,000, we need to consider the probabilities associated with John's response as well as the probabilities associated with the possible trial outcomes.

According to the information provided, the probabilities associated with John's response are as follows:
- John will accept the counteroffer of $400,000: 0.10
- John will reject the counteroffer of $400,000: 0.40
- John will make a counteroffer of $600,000: 0.50

Now, let's consider the possible trial outcomes and their associated probabilities:
- The jury will award John damages of $1,500,000: 0.30
- The jury will award John damages of $750,000: 0.50
- The jury will award John nothing: 0.20

To determine the decision strategy, we need to evaluate the expected values (weighted average outcomes) for each possible action.

If Allied makes a counteroffer of $400,000, there are three possible outcomes:

1. John accepts the counteroffer: The expected value is $400,000 * 0.10 = $40,000.
2. John rejects the counteroffer: The expected value depends on John's counteroffer. But since we don't know the amount of his counteroffer, we cannot calculate the expected value for this outcome.
3. The case goes to court: The expected value is $1,500,000 * 0.30 + $750,000 * 0.50 + $0 * 0.20 = $825,000.

Based on this analysis, the decision strategy for Allied if they decide to make John a counteroffer of $400,000 would be to weigh the expected values of the outcomes. However, since we don't have the information required to calculate the expected value for the outcome where John rejects the counteroffer, we cannot fully determine the decision strategy based on the given information.