Decision of Uncertainty

Decision of Uncertainty Paper

James Schlairet

QNT/561 – Applied Business Research and Statistics

December 17, 2012

Aviv Raveh

Decision of Uncertainty Paper

Decision: To purchase an extended warranty or not.

Introduction

The warranty on my Ford F150 is approaching its expiration date. The decision is to continue with an extended warranty to cover repairs on a vehicle. The dilemma with this decision is if the cost of the extended warranty will exceed the cost of repairs without a warranty. An extended warranty will provide coverage for the owner in repairs, parts, rentals, and in some cases even labor cost.

Research

To make an accurate decision on whether to purchase an extended warranty or not, I researched with my local dealers in the area. There are several expenses that I could be responsible for if an extended warranty is not purchased. Transmission replacement can cost $3,000; ECU replacement can cost $3,000; engine replacement can cost $2,000. During the next five years the chance of a repair is likely. This cost is covered if an extended warranty is purchased; if not this would be an out-of-pocket cost.

Interpretation of Data

To interpret the data, I plan to use the Bayes’ Theorem as the probability model. This choice was the most applicable to the warranty decision. Bayes’ Theorem is defined as relating the probability of an occurrence of an event to the occurrence or non-occurrence of an associated event (2012). This theorem determines the degree of confidence in possible conclusions on the basis of the evidence gathered. The evidence gathered is explained in terms of...