Use of Bayesian Decision Analysis to Assess if Conducting Marketing Research is Worthwhile

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

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

8. Decision Tree

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

10. Conditional Probability of Getting Each Test Market Result Given Each State of NatureRead by Row (Zk) within Column (Sj)

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

12. Optimal choice if test market result is Z1 Optimal choice if test market result is Z2 Optimal choice if test market result is Z3

13. Example #2

15. Solution to Example #2

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

20. Example #3—You Solve

22. Study Questions