Use of Bayesian
Decision Analysis to
Assess if Conducting
Marketing Research
is Worthwhile
Dr. Michael R. Hyman
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Reading (from
Dillon, Madden,
and Firtle (1990)
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Decision Tree
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Payoff Table for Pricing Decision
Prior probabilities
Example #1
Optimal choice
without additional
research information
Table contains alternatives, states of nature, and consequences
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Conditional Probability of Getting Each Test Market Result
Given Each State of Nature
Read by Row (Zk) within Column (Sj)
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Revision of Prior Probabilities in Light of Possible Test
Market Results
Sj = State of Nature;
Zk = Level of
Success in Test
Notice difference in
revised (postresearch) distribution
of demand
probabilities
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Σ=1.0
Optimal choice if
test market result
is Z1
Optimal choice if
test market result
is Z2
Optimal choice if
test market result
is Z3
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Example #2
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Solution to
Example #2
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Revision of Prior Probabilities in Light of Research
Information that Surveys Unlimited Might Provide
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Example #3—You Solve
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Study Questions
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