Value of a perfect forecast for the future behavior

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Reference no: EM131410003

Dennis Dunkwright is a former NBA player and free spirit whose face and unusual antics are well known to young Americans across the land. A marketer of athletic shoes is considering the possibility of retaining Dennis to appear in a series of high-profile television ads over the coming fiscal year.

If Dennis is associated with their company and stays out of legal and substance abuse difficulties during the year, the company estimates its profits will be $4.4 million for the year. However, if Dennis runs afoul of the law or does anything else that might make the company look bad, the estimated profit would be just $0.5 million.

If the company remains with its current spokesperson, who is lesser known but more stable, it estimates its annual profit for the year to be $1.2 million. If the company believes there to be a 0.20 probability that Dennis will get into trouble during the year, what strategy should be selected if the company wishes to maximize its expected profit?

What would be the expected value of a perfect forecast for the future behavior of their potential new spokesperson?

Reference no: EM131410003

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