The homework and case assignments are in your packet. Supplementary exercises for some lectures are included at the end of your lecture outline.
- Oil Drilling Simulation Homework
- Supplementary Materials for Lectures.
- Bayes Theorem Supplement -- Real Options Lecture. The intuition of Bayes Theorem came up when we discussed the real options valuation in lecture and is applicable to many situations where you learn. Bayes Theorem explains how you start with an initial probability estimate (guess) and then, given the data you observe, you update your probability estimate. If you would like to review the logic of Bayes Theorem, I recommend a couple of Khan Academy Videos. Probability 7 and Probability 8 contain the most relevant material. They show the intuition and mechanics of Bayes Theorem. Click here for a more complete explanation and how you can apply the concepts to the Coffee Cafe example. The concepts will also help you in other class assignments (oil simulation homework) and life (when you need to update probabilities based on new data -- e.g. learning). Probability 7 and Probability 8 build on Probability 6. I don’t think you need to watch Probability 6, especially if you have read my description of the environment. One feature I like in the way the material is presented in Probability 6 is the use of trees to describe the information. I find that decisions trees are a very useful tool for analyzing and explaining real options valuation.