Question: A television network has been receiving low ratings for its programs. Currently, management is considering two alternatives for the Monday night 8:00pm – 9:00pm time slot: a western with a well-known star or a musical variety with a relatively unknown husband-and-wife team. The percentages of viewing audience estimates depend on the degree of program acceptance. The relevant data are as follows:

Percentage of viewing audience

Program acceptance Western Musical Variety

High 30% 40%

Moderate 25% 20%

Poor 20% 15%

The probabilities associated with the program acceptance levels are as follows:

Probability

Program acceptance Western Musical Variety

High .30 .30

Moderate .60 .40

Poor .10 .30

a. Using the expected value approach, which program should the network choose?

b. For a utility analysis, what is the appropriate lottery?

c. Based on the lottery in part(b), assume that the network’s program manager has assigned the following indifference probabilities. Based on the use utility measures, which program would you recommend? IS the manager a risk taker or a risk avoider?

Percentage of Audience Indifference Prob

30% .40

25% .30

20% .10