Freemark Abbey Winery Essay

1. Construct the ratiocination tree for William Jaeger.2. What should he do?Jaeger should engage to draw later and wait for the thrust. If the storm does come but destroys the grapes, he finish decide whether to bottle wine or non to protect winerys reputation. In either way, he will gain high revenues from harvesting later than harvesting immediately EV of Do non harvest & Bottling $39240EV of Do non harvest & not bottling $39240-$12000*0.6*0.5=$35640 EV of Harvest $34200If the winerys reputation is of great importance for pine term profitability, he should make out to sell the wine in bulk, or sell the grapes directly to avoid impairing reputation. Besides, Riesling wines contribute altogether about 1,000 cases of wine, and the all in all winery produced about 25,000 cases of wine bottled each year. Since the Riesling takes only about 4% of winerys total production and the decision analysis only affects a small proportion of winery revenues, an expected determine a pproach shot is used (not expected utility approach). However, if Jaeger is extremely risk average or the winery could not afford any risks at that time, he could choose to harvest immediately to reduce uncertainty.3. Incorporate the plectrum that Jaeger can sustain arrant(a) weather selective information on the path of the storm into your decision tree. Note that the type of storm remains uncertain.4. What should he do promptly? And at most how much he is uncoerced to pay for this eyepatch of information? With perfect information of whether storm strikes or not, Jaeger should still choose to harvest later and wait for the storm. EV of Harvest stream $34200EV of Do not harvest stream $39240 (no matter Jaeger decides to bottlenot-up-to-standard wine or not) When Jaeger decides to bottling not up-to-standard wine, EV of Information stream $39240When Jaeger decides to not bottling not-up-to-standard wine, EV of Information stream $34200*0.5+$37200*0.5=$35700 (Information, Storm strike, Do not harvest & Not bottling this option will not be chosen as its EV is $34080, smaller than EV of Information, Storm strike & Harvest $34200) As the option harvest later and wait for the storm will bring the highest revenues no matter Jaeger decides to bottle not-up-to-standard wine or not to protect reputation, he should stick to the strategy of harvesting later.Even if the perfect information is free-of-charge, and he decides to bottle not-up-to-standard wine to get more monetary returns, the expected value is the same as do not harvest and do not gain perfect information. If he chooses to get perfect information, and decides to not bottle not-up-to-standard wine, the expected value will be lower. Because the perfect information cannot affect his choice from an ex ante position, it is worthless and he is willing to pay for zero. In this case, the information cannot predict the storm type, so the perfect information is worthless for Jaeger. If the perfect information can predict the storm type, it is valuable and Jaeger will be willing to pay.