SOLUTION: Subjective probabilities are assigned to each of the possible outcomes of a construction project: P(Profit at 10M) =0.4, P(Profit at 0.5M)=0.2, P(Breakeven)=0.2, P(Loss at 2M)=0.3.

Question 998748: Subjective probabilities are assigned to each of the possible outcomes of a construction project: P(Profit at 10M) =0.4, P(Profit at 0.5M)=0.2, P(Breakeven)=0.2, P(Loss at 2M)=0.3. Are these probability assignments valid? Why or why not.
Answer by Boreal(15235) (Show Source): You can put this solution on YOUR website!
No, they are not valid. They may have some use, but subjective probabilities are a guess, and there is plenty of research to show that we often over or underestimate the probabilities of certain conditions or occurrences. One can generate numbers from these and the Expected value is +$3.5 million, but it is still a guess.
RELATED QUESTIONS
1. Subjective probabilities are assigned to each of the possible outcomes of a... (answered by ikleyn)

A decision maker subjectively assigned the following probabilities to the four outcomes... (answered by Alex.33)

a. Professors M. Boehlje and V. Eidman in their book Farm Management described a way that (answered by CPhill)

Which of the following is NOT true? A. If an event cannot possibly occur, then the... (answered by jim_thompson5910)

EVALUATING R&D PROJECTS AT WESTCOM SYSTEMS PRODUCTS COMPANY West-Com Systems Products... (answered by ikleyn)

An experiment consists of two independent trials. The outcomes of the first trial are A,... (answered by Theo)

Please help! I haven't the foggiest idea how to do an example problem with this formula. (answered by stanbon)

When two balanced dice are rolled 36 equally likely outcomes When two balanced dice... (answered by ikleyn)

How many ways can three items be selected from a group of five items? Use the letters A,... (answered by math_helper)