Reference no: EM131710335

Question: In an effort to predict Alaska's oil-related state revenues, a Delphi session is regularly held where experts in the field give their expectations of the average future price of crude oil over the next year. The views of five prominent experts who participated in the last Delphi session may be stated as normal prior distributions with means and standard deviations given in the following table. To protect their identities (the Delphi sessions are closed to the public), we will denote them by the letters A through E. Data are in dollars per barrel.

Expert        Mean        Standard deviation

A                23                     4

B                19                     7

C                25                     1

D                20                     9

E                27                     3

Compare the views of the five experts, using this information. What can you say about the different experts' degrees of belief in their own respective knowledge? One of the experts is the governor of Alaska, who, due to the nature of the post, devotes little time to following oil prices. All other experts have varying degrees of experience with price analysis; one of them is the ARCO expert who assesses oil prices on a daily basis. Looking only at the reported prior standard deviations, who is likely to be the governor, and who is likely to be the ARCO expert? Now suppose that at the end of the year the average daily price of crude oil was $18 per barrel. Who should be most surprised (and embarrassed), and why?