Arda Sahin 64807 INDR 430/530 – FALL 2021

63344
Several Akigr HOMEWORK 1

Due on Friday, November 5

Instructions: Please submit your solutions on Blackboard by midnight on the due date. You
can work on the homework and submit it individually or in pairs. To earn full credit for a
question, the answer should be clearly written and justified, and any files used in answering the
question must be uploaded.
Question 1. A consulting company needs to send a team of consultants to meet with a new
client in Ankara. The team can either fly or drive to Ankara. Let x represent the (certain)
cost of a round-trip plane ticket from Istanbul to Ankara, and Y be the uncertain round-trip
cost of driving between the two cities. The possible values of the cost Y are y1 and y2 with
probabilities p1 and p2 respectively. If driving is selected, then the whole team will travel in
one rental car. The number of consultants who will travel is currently uncertain with possible
values 2, 3, 4 and probabilities q2 , q3 , q4 , respectively.

(1) (5 pts) Suggest two di↵erent objectives that can be relevant to this decision context in
addition to minimizing the travel cost. Are there any tradeo↵s between these objectives?
In the rest of the question, assume that minimizing the travel cost is the only objective.

(2) (10 pts) Draw a decision tree to represent this problem.

(3) (5 pts) Set the base values for all the parameters and find the optimal strategy.

(4) (10 pts) Draw the cumulative risk profile of each strategy.

(5) (5 pts) What are the necessary and sufficient conditions for the cost of driving to deter-
ministically dominate the cost of flying?

(6) (5 pts) What are the necessary and sufficient conditions for the cost of driving to stochas-
tically dominate the cost of flying?

(7) (15 pts) Set the base values for all the parameters in such a way that there is no stochastic
dominance between the two alternatives. Perform one-way sensitivity analysis with respect
to the cost parameters x, y1 , y2 assuming each can deviate from the base value by 25%
(e.g., if you set x = 100, then its range for sensitivity analysis will be [75, 125]). Show
your results via graphs, discuss them, and determine which cost parameter seems to be
the most influential.

(8) (15 pts) Set the base values for all the parameters in such a way that there is no stochas-
tic dominance between the two alternatives. Perform two-way sensitivity analysis with
respect to q2 and q4 . Show your results on a graph and discuss them.

1
Question 2. PSA (Prostate-Specific Antigen) test is a widespread form of screening prostate
cancer. A study collected data on a sample of men who went through both PSA test and biopsy,
and estimated the following probabilities. An individual who has prostate cancer will have a
high PSA level with probability 40%, a moderate PSA level with probability 45%, and a low
PSA level otherwise. On the other hand, an individual who does not have prostate cancer will
have a high PSA level with probability 5%, a moderate PSA level with probability 35%, and a
low PSA level otherwise.

(1) (15 pts) Assuming one out of eight men develops prostate cancer at some point in his
lifetime, calculate the probability that a man with a high PSA level has prostate cancer
and the probability that a man with a low PSA level does not have prostate cancer. What
do these probabilities suggest about clinical importance of PSA screening test?

(2) (15 pts) Suppose one out of n men develops prostate cancer at some point in his lifetime,
where n  50, and let p(n) be the probability that a man with a high PSA level has
prostate cancer. Sketch p(n) versus n. What does this suggest about the relation between
the probability that a man with a high PSA level has prostate cancer and the prevalence
of prostate cancer?

2
② One objective might be to minimize the

total time spent travelling .

Another one is
maximizing the
safety of consultants

if we chose to travel by or
,
the two 05sec -

truth
lives conflict as
minimizing the time spent
travelling requires going faster or not taking breaks .

Either will reduce the safety of consultants .

92
② "
2x

€0
3 ✗

94 YX

,>
-

Rig Pi y,
y , C 92
0 P2 .
92

③ 92=0.25 , 93=0.5 ,
014=0.25 ✗ =
750€

1100€ Yz 1400 E
0.3 p 2=0.7 Yi =
Pl =
,
=
,

D. 25
21750) = 15
° -5
317501=2250
0.25
y (7-50)=3000
EMU = 0.25×1500 t 0.5×2250 + 0.25 ✗ 3000

2250
☐ 375 t 1125 + 750 =

Rig
0.3 1100 32dB
0 -
0.7
.
1400 yep

EMV =
0.3×1100 + 0.7×1400 =
1310

330 + 980

min
{2250/1310} = 1310

↳ optimal strategy = drive

④ drive fly

Pr
1 -

p
- - -
-
-
- -

Oi 8-
•

D.6 -

0.4 -

f
-

0.2 -

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⑤ The
necessary
md sufficient conditions for cost of
to
driving deterministically dominate the cost of flying
is Yz < 2X .
CY , < Yz)

⑥ In
driving deterministically
dominates
this case , since

flying ,
stochastic dominance is also achieved .

→ driving >
flying
µµr
Gdp
•←Aa ME
BAG
qgg-g@-AA
⑦ Base values of and increased
yl yz were

from 1100 and 1490 to 2200 and 2500 to

eliminate stochastic dominance .

Following 13 the

annotative risk
soph ✗
sensitivity analysis

y, 92
Yz seems to be the most influential
cost
parameter with output value changing 18.15%
to 4.17% 91=>6.85010 for 25% charge
compared ✗

the
in
input .

⑧ Some base vales were used as in 7 .