17-2 Game Show Uncertainty
In the final round of a TV game show, contestants
have a chance to increase their current winnings of
$1 million to $2 million. If they are wrong, their
prize is decreased to $500,000. A contestant thinks
his guess will be right 50% of the time. Should he
play? What is the lowest probability of a correct
guess that would make playing profitable?
17-6 Hiring
The HR department is trying to fill a vacant
position for a job with a small talent pool. Valid
applications arrive every week or so, and the
applicants all seem to bring different levels of
expertise. For each applicant, the HR manager
gathers information by trying to verify various
claims on resumes, but some doubt about fit
always lingers when a decision to hire or not is
to be made. What are the Type I and II decision
error costs? Which decision error is more likely to
be discovered by the CEO? How does this affect
the HR manager’s hiring decisions?