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.
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-> 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.
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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.
