1. Dr. Michael R. Hyman Use of Bayesian Decision Analysis to Assess if Conducting Marketing Research is Worthwhile

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3. 3 Reading (from Dillon, Madden, and Firtle (1990)

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8. 8 Decision Tree

9. 9 Table contains alternatives, states of nature, and consequences Example #1 Payoff Table for Pricing Decision Prior probabilities Optimal choice without additional research information

10. 10 Conditional Probability of Getting Each Test Market Result Given Each State of Nature Read by Row (Z k ) within Column (S j )

11. 11 Revision of Prior Probabilities in Light of Possible Test Market Results Notice difference in revised (post- research) distribution of demand probabilities S j = State of Nature; Z k = Level of Success in Test Σ=1.0

12. 12 Optimal choice if test market result is Z 1 Optimal choice if test market result is Z 2 Optimal choice if test market result is Z 3

13. 13 Example #2

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15. 15 Solution to Example #2

16. 16 Revision of Prior Probabilities in Light of Research Information that Surveys Unlimited Might Provide

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20. 20 Example #3—You Solve

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22. 22 Study Questions