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1. You should be able to sell the camera for about $1500 if you don't like it, therefore the cost of the wrong decision is about $500, or $100 in expectation. S

by ikeboy 8y ago

1. You should be able to sell the camera for about $1500 if you don't like it, therefore the cost of the wrong decision is about $500, or $100 in expectation. Spend no more than 4 hours. 2. Regardless of the answer, worst case you'd be spending $250k this year to make 500k over the next few years, which is a terrific return on capital. Buy it, information is useless here. 3. Studies showing 95% confidence are wrong more than 50% of the time. The answer is let private companies decide if they think the odds are good enough to conduct expensive trials. 4. The current ROI for pharma companies is below cost of capital and will be negative in 2 years. It's not a great business anymore. https://endpts.com/pharmas-broken-business-model-an-industry-on-the-brink-of-terminal-decline/ https://endpts.com/pharmas-broken-business-model-an-industry... I'm not sure if these are the answers the author is expecting, but they seem to be the correct ones to me. Edit: also, the cost of a drug is mostly development. Production is dirt cheap once it's been developed. The model here of a cheaper drug is just wrong. They might be cheaper, which would force A's cost down, etc, but has nothing to do with cost of production.

andyidsinga 8y ago
I like your #1 .. my intuition was that spending 16 hours was too much (which is ironic given the subject). re #2, I started thinking about how this purchase would be made - cash or debt. Also, I would want to know the cash flow of the business to ensure it could support the 6 month integration costs.
imtringued 8y ago
>Buy it, information is useless here. Information isn't useless in this example. For some unexplained reason you have already obtained information for no cost which doesn't make any sense. The real scenario is: cost overrun by $250k to $1 million over x months, profit increase between $50k to $100k per year. How much are you willing to spend to obtain 100% certainty?
- ikeboy 8y ago
  Well then you need to estimate the distribution of those results. If it's uniform between those numbers then it's an expected loss, and whether it's worth spending a significant amount of money on information depends on whether the company can afford it. If, say, the value of information was 200k in expectation, that doesn't imply that the company should spend anywhere near that amount on information, because they should be somewhat risk averse if they can't spread the risk over many such decisions.

by ikeboy 8y ago

andyidsinga 8y ago

I like your #1 .. my intuition was that spending 16 hours was too much (which is ironic given the subject). re #2, I started thinking about how this purchase would be made - cash or debt. Also, I would want to know the cash flow of the business to ensure it could support the 6 month integration costs.

imtringued 8y ago

>Buy it, information is useless here. Information isn't useless in this example. For some unexplained reason you have already obtained information for no cost which doesn't make any sense. The real scenario is: cost overrun by $250k to $1 million over x months, profit increase between $50k to $100k per year. How much are you willing to spend to obtain 100% certainty?

ikeboy 8y ago
Well then you need to estimate the distribution of those results. If it's uniform between those numbers then it's an expected loss, and whether it's worth spending a significant amount of money on information depends on whether the company can afford it. If, say, the value of information was 200k in expectation, that doesn't imply that the company should spend anywhere near that amount on information, because they should be somewhat risk averse if they can't spread the risk over many such decisions.