GIVEN
Cost of hiring geologist ($30,000)
Cost of drilling ($300,000)
Net present value of finding oil $1,800,000
BEFORE HIRING A GEOLOGIST
Probability of finding oil 0.48
AFTER HIRING A GEOLOGIST
Probability of favorable recommendation 0.55
Probability of finding oil after favorable recommendation 0.75
Probability of finding oil after unfavorable recommendation 0.15
2Drillornot2Drill
FALSE
-30000
FALSE 0.0%
Don't Drill
0 0
Drill
564000
48.0% 48.0%
Found Oil
1800000 1500000
TRUE Oil?
Drill
-300000 564000
52.0% 52.0%
No Oil
0 -300000
FALSE 0.0%
Don't Drill
0 -30000
55.0% Drill
Favorable
0 1020000
75.0%
Found Oil
1800000
TRUE Oil?
Drill
-300000 1020000
25.0%
No Oil
0
FALSE Study Outcome
Hire Geologist
-30000 547500
TRUE 0.0%
Don't Drill
0 -30000
45.0% Drill
Unfavorable
0 -30000
15.0%
Found Oil
1800000
FALSE Oil?
Drill
Drill
-300000 -60000
85.0%
No Oil
0
0.0%
1470000
0.0%
-330000
0.0%
1470000
0.0%
-330000