Question

Kelly is contemplating on returning to graduate school to earn her MBA. She knows from experience, that she can get a well paying job after undergraduate school. The probability of getting a job with a salary of $20,000/year is 75% and a job with a salary of $30,000/year is 25%. However, if she chooses to attend and finish graduate school, her salary would likely increase. The probability of getting a job with a salary of $40,000/year is 75% and getting a job with a salary of $50,000/year is 25%. Knowing that tuition cost and years spent on schooling is not a concern to Kelly, should Kelly find a job or return to graduate school?

Find the best decision using the following:

a.         Develop a payoff table for the above situation.

b.         Find the following:

1.         Maximax

2.         Maximin

3.         Equal Likelihood

4.         Minimax Regret

c.         Create a sensitivity graph comparing the different alternatives as the probability of getting a job changes.