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  • Problem 9 Page 772: Exercise Parisay's Comments Are in Red

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    Roger Salamanca
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    The document discusses a scenario where a government is deciding whether to test immigrants for a contagious disease before allowing them into the country. It costs $100,000 for each immigrant with the disease that enters, but they would contribute $10,000 to the economy if disease-free. 10% of immigrants have the disease. The government can choose to admit all, none, or test immigrants at a cost of $100 per test. The test is imperfect, correctly identifying positive 80% of the time and never falsely identifying negative cases. The government aims to maximize expected benefits minus costs per potential immigrant.

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    The document discusses a scenario where a government is deciding whether to test immigrants for a contagious disease before allowing them into the country. It costs $100,000 for each immigrant with the disease that enters, but they would contribute $10,000 to the economy if disease-free. 10% of immigrants have the disease. The government can choose to admit all, none, or test immigrants at a cost of $100 per test. The test is imperfect, correctly identifying positive 80% of the time and never falsely identifying negative cases. The government aims to maximize expected benefits minus costs per potential immigrant.

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    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
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    6 views1 page

    Problem 9 Page 772: Exercise Parisay's Comments Are in Red

    Uploaded by

    Roger Salamanca
    The document discusses a scenario where a government is deciding whether to test immigrants for a contagious disease before allowing them into the country. It costs $100,000 for each immigrant with the disease that enters, but they would contribute $10,000 to the economy if disease-free. 10% of immigrants have the disease. The government can choose to admit all, none, or test immigrants at a cost of $100 per test. The test is imperfect, correctly identifying positive 80% of the time and never falsely identifying negative cases. The government aims to maximize expected benefits minus costs per potential immigrant.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 1

    Exercise

    Parisay’s comments are in red.


    Problem 9 page 772

    The government is attempting to determine whether immigrants should be tested for a


    contagious disease. Let’s assume the decision will be made on a financial basis. Assume
    that each immigrant who is allowed into the country and has disease costs the United
    States $100,000, and each immigrant who enters and does not have the disease will
    contribute $10,000 to the national economy. Assume that 10% of all potential immigrants
    have the disease. The government may admit all immigrants, admit no immigrants, or test
    immigrants for the disease before determining whether they should be admitted. It costs
    $100 to test a person for the disease; the test result is either positive or negative. If the
    test result is positive, the person definitely has the disease. However, 20% of all people
    who do have the disease test negative. A person who does not have the disease always
    test negative. The government’s goal is to maximize (per potential immigrant) expected
    benefits minus expected costs.

    Bayes’ calculation?

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