Question

You are trying to get the cheapest airfare to reach your hometown. You just found on makemytrip.com that the ticket home will cost $400, and it cannot be refunded or exchanged. You also have the option of buying a ticket for $450, which can be refunded for $350 (and thus costs you $100). The price of tickets is expected to change in one week, and you will have one more chance to buy a ticket. There is a 50% chance that the ticket would cost $300, and a 50% chance that it would cost $600. Construct a decision tree and determine the best course of action to minimize the expected expense. Assume that you (decision maker) are a sensible adult who takes rational decisions!!

Answer 1

After making the decision tree according to the given information. The best course of action of the sensible adults to minimize his/her expenses would be the regular tickets for $400 (if the nonrefundable ticket is okay).

Then the second-best option would be a regular refundable ticket for $450. The best option is to wait for next week for a decrease in price. But there are 50-50% chances of only a 25% decrease in the price but a 50% increase in the price. Therefore, it is not suitable to choose the third option.

Here is the decision tree:

Is AirLine Ticket Refundable NO Yes $400 $450 Is This Final Price? Refunded Money? Is there variation in Price In next one week. $350 Yes No Yes Is This Final Price? %Variation in Price? Try other alternatives Yes Is it okay to book non refundable ticket? $300 with 50% chnace $600 with 50% chance Is it okay to book non refundable ticket? NO Yes Is it Equal or lesser then earlier offers Yes NO Try other alternatives Book The Ticket Yes No Try other alternatives Book The Ticket Book The Ticket Try other alternatives Decision Tree