MBA 201a Fall 2009—Prof. Wolfram

Case Preparation Discussion Questions: Freemark Abbey Winery

Answer and be prepared to discuss the following questions:

1. Draw a decision tree to depict the choices and possible events Jaeger is facing. What are the decisions to be made? What are the chance nodes that will occur? What are the payoffs? (In drawing your tree, assume that Jaeger is an expected value maximizer, i.e. that he is risk-neutral.)

2. How would the optimal decision change if the reputation damage from bottling a thin wine were substantial enough that Jaeger would rather sell the grapes in bulk than bottle a thin wine?

3. How much would Jaeger be willing to pay for a weather forecast that would tell him with near certainty whether or not the storm will hit?

4. How would risk aversion affect the harvest decision?