Exercise 3.2 A three-man board, composed of A, B, and C, has held hearings on a personnel case involving an officer of the company. This officer was scheduled for promotion but, prior to final action on his promotion, he made a decision that cost the company a good deal of money. The question is whether he should be (1) promoted anyway, (2) denied the promotion, or (3) fired. The board has discussed the matter at length and is unable to reach unanimous agreement. In the course of the discussion it has become clear to all three of them that their separate opinions are as follows: • A considers the officer to have been a victim of bad luck, not bad judgment, and wants to go ahead and promote him but, failing that, would keep him rather than fire him. ⚫ B considers the mistake serious enough to bar promotion altogether; he'd prefer to keep the officer, denying promotion, but would rather fire than promote him. ⚫ C thinks the man ought to be fired but, in terms of personnel policy and morale, believes the man ought not to be kept unless he is promoted, i.e., that keeping an officer who has been declared unfit for promotion is even worse than promoting him. PROMOTE KEEP FIRE A: best middle worst B: worst best middle C: middle worst best Assume that everyone's preferences among the three outcomes are fully evident as a result of the discussion. The three must proceed to a vote. Consider the following voting procedure. First A proposes an action (either promote or keep or fire). Then it is B's turn. If B accepts A's proposal, then this becomes the final decision. If B disagrees with A'a proposal, then C makes the final decision (which may be any of the three: promote, keep or fire). Represent this situation as an extensive game with perfect information. (Use utility numbers from the set {1,2,3}.)

Marketers from a media website want to nudge their customers to upgrade their free membership to paid membership. To do so, they sent out two emails. Email 1 was sent out 10,000 emails to their customer base. Of which 1000 emails were opened. 500 of those consumers further clicked on some part of the email. Of those 500 customers, 20 signed up for upgrading their membership. Email 2 was sent out 10,000 emails to their customer base. Of which 600 emails were opened. 300 of those consumers further clicked on some part of the email. Of those 300 customers, 30 signed up for upgrading their membership. If you were optimizing for open rate, which would be the winner email? And what are the open- rates for both the emails. Open rate for Email 1 is 10% and open rate for Email 2 is 6%. Email 2 is a winner. O Open rate for Email 1 is 10% and open rate for Email 2 is 6%. Email 1 is a winner. Open rate for Email 1 is 5% and open rate for Email 2 is 3%. Email 2 is a winner. Open rate for Email 1 is…

Soft selling occurs when a buyer is skeptical of the usefulness of a product and the seller offers to set a price that depends on realized value. For example, suppose a sales representative is trying to sell a company a new accounting system that will, with certainty, reduce costs by 20%. However, the customer has heard this claim before and believes there is only a 20% chance of actually realizing that cost reduction and a 80% chance of realizing no cost reduction. Assume the customer has an initial total cost of $500. According to the customer's beliefs, the expected value of the accounting system, or the expected reduction in cost, is $ Suppose the sales representative initially offers the accounting system to the customer for a price of $60.00. The information asymmetry stems from the fact that the has less information about the efficacy of the accounting system than does the At this price, the customer purchase the accounting system, since the expected value of the accounting…

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