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Valuing Limited Information in Decision Making Under Uncertainty

  • Allan W. Gray

    ()

  • Joshua D. Detre

    ()

  • Brian C. Briggeman

    ()

    (Department of Agricultural Economics, College of Agriculture, Purdue University)

Fresh Juice Inc. (FJI) is in the process of determining whether they should launch a new fruit juice in a market that has been relatively stagnant for the last 15 years. Management of FJI is faced with uncertainty surrounding market share, market size, price, and competitor entry. In addition, FJI has the ability to chose between alternative production processes; this choice directly affects the likelihood the investment will return a positive Net Present Value. This case teaches students how to develop a stochastic simulation models given limited information to analyze risk investment decisions.

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File URL: http://ageconsearch.umn.edu/bitstream/28676/1/sp050002.pdf
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Paper provided by Purdue University, College of Agriculture, Department of Agricultural Economics in its series Working Papers with number 05-02.

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Length: 16 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:pae:wpaper:05-02
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Web page: http://www.agecon.purdue.edu/

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  1. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June.
  2. Lusk, Jayson L., 2002. "Effects Of Cheap Talk On Consumer Willingness-To-Pay For Golden Rice," 2002 Annual meeting, July 28-31, Long Beach, CA 19597, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
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