Quick Start to RISK assignment

| August 30, 2017

Question

You have made it to the final round of the show Let’s Make a Deal. You know that there is a $1 million prize behind either door 1, door 2, or door 3. It is equally likely that the prize is behind any of the three doors.

The two doors without a prize have nothing behind them. You randomly choose door 2. Before you see whether the prize is behind door 2, host Monty Hall opens a door that has no prize behind it. Specifically, suppose that before door 2 is opened, Monty reveals that there is no prize behind door 3. You now have the opportunity to switch and choose door 1. Should you switch? Simulate this situation 1000 times. For each replication use an @RISK function to generate the door that leads to the prize. Then use another @RISK function to generate the door that Monty will open.

Assume that Monty plays as follows: Monty knows where the prize is and will open an empty door, but he cannot open door 2. If the prize is really behind door 2, Monty is equally likely to open door 1 or door 3. If the prize is really behind door 1, Monty must open door 3. If the prize is really behind door 3, Monty must open door 1.

143

For this question, you will need to use the RiskDuniform. We did not discuss this in class, but that is the challenge. ? To help you get going (a luxury you likely won’t have, at times, in the real world!), click on the help icon in @Risk, and browse through the manual (a pdf file) to page 545. There you will see the RiskDuniform function. This is the @Risk function you will need to solve the problem. ?

Create two OUTPUT cells on the same sheet, one for “Winning the Prize if you Switch” and the other for “Winning the Prize if you Don’t Switch”.

You will run need to run only one Simulation.

In your answer sheet, for each of the two decisions, “Prize if you Switch”, or “Prize if you Don’t Switch”, what are the corresponding mean probabilities from your simulations? Report these.

Also report the corresponding standard deviations for the above probabilities.

Then, state the best decision for Monty based on the simulated mean probabilities.

Quick Start to @RISK
Quick Start to @RISK
Welcome to @RISK!
Welcome to @RISK!
@RISK is the most powerful, flexible, and easy-to-use risk analysis tool available. You will see that in aafew simple clicks, you will be
@RISK is the most powerful, flexible, and easy-to-use risk analysis tool available. You will see that in few simple clicks, you will be
able to analyze risks and gain new insights never before possible in static spreadsheets.
able to analyze risks and gain new insights never before possible in static spreadsheets.
This Quick Start application is designed to get you up and running with aavery basic risk analysis in just aafew steps. The concepts you
This Quick Start application is designed to get you up and running with very basic risk analysis in just few steps. The concepts you
will learn here apply to any risk analysis. @RISK has many features that improve analyses and enhance accuracy that will not be
will learn here apply to any risk analysis. @RISK has many features that improve analyses and enhance accuracy that will not be
covered in this tutorial. For more comprehensive video tutorials and resources, click Videos on the @RISK ribbon. For aadetailed user
covered in this tutorial. For more comprehensive video tutorials and resources, click Videos on the @RISK ribbon. For detailed user
manual, references, and Help documentation, see the Help menu on the @RISK ribbon.
manual, references, and Help documentation, see the Help menu on the @RISK ribbon.
How to use this Quick Start file
How to use this Quick Start file
First, make sure @RISK is loaded. It is loaded if you see an @RISK tab at the top of the Excel window. If it is not loaded, click the
First, make sure @RISK is loaded. It is loaded if you see an @RISK tab at the top of the Excel window. If it is not loaded, click the
@RISK icon on your desktop or click the Windows Start button, find @RISK in the Palisade DecisionTools group in the All Programs
@RISK icon on your desktop or click the Windows Start button, find @RISK in the Palisade DecisionTools group in the All Programs
list, and click @RISK. In other words, open it just like you open any other program. After aawelcome message, you should see the
list, and click @RISK. In other words, open it just like you open any other program. After welcome message, you should see the
@RISK tab and its associated ribbon, shown below.
@RISK tab and its associated ribbon, shown below.
Now you can explore the financial @RISK model on the next worksheet. The logic of the model has already been developed with
Now you can explore the financial @RISK model on the next worksheet. The logic of the model has already been developed with
appropriate Excel formulas. You can study this logic and then complete the model by following the six steps indicated by the buttons
appropriate Excel formulas. You can study this logic and then complete the model by following the six steps indicated by the buttons
at the top. Each of these buttons links to aashort online video explaining the purpose of the step and how to implement it with
at the top. Each of these buttons links to short online video explaining the purpose of the step and how to implement it with
@RISK. Then it asks you to do it yourself. All six videos take less than 20 minutes total. By the time you have gone through all of the
@RISK. Then it asks you to do it yourself. All six videos take less than 20 minutes total. By the time you have gone through all of the
steps, you will not only have run aasimulation on this particular model, but you will have learned the basic steps for any @RISK
steps, you will not only have run simulation on this particular model, but you will have learned the basic steps for any @RISK
model. Also, you can click the More @RISK Examples button to see many more examples that are packaged with @RISK.
model. Also, you can click the More @RISK Examples button to see many more examples that are packaged with @RISK.
When watching the videos, you can fit the video to your screen by clicking the Full Screen icon in the lower right corner of the video
When watching the videos, you can fit the video to your screen by clicking the Full Screen icon in the lower right corner of the video
controls:
controls:
An Internet connection is required to watch the step-by-step videos.
An Internet connection is required to watch the step-by-step videos.
If you don’t have Internet access or want an easy reference, the six steps are explained in written form in the embedded PDF file
If you don’t have Internet access or want an easy reference, the six steps are explained in written form in the embedded PDF file
called Risk Quick Start.pdf next to the videos buttons. Simply click the Read PDF instructions button to open it.
called Risk Quick Start.pdf next to the videos buttons. Simply click the Read PDF instructions button to open it.

@RISK ribbon

Simulation for Choosing the Winning Door

Decision Variable
Door chosen

2

Simulated Quantities
Door with prize
Door revealed by Monty

1
3

Door you can switch to

Outputs
Switch
Stay

1

The choice
Prize won?

Switch

Stay
0

1

Values from @Risk Summary
The choice
Mean
Uncertain Values
Prize Won
Lost

Switch

Stay

0

1000000
1000000

Known inputs
Discount rate
Bonus limit
Uncertain inputs
Investment cost
Year 1 revenue
Annual fixed cost
Annual revenue growth rate
Annual variable cost percentage
Discounted cash flows calculations
Year
Investment cost
Revenue
Fixed cost
Variable cost
Cash flow
Outputs
NPV
Bonus

12%
$30,000
Distribution
Triangular
Triangular
Triangular
Normal
Normal

$50,000
$100,000
$35,000
5%
50%

0
($50,000)

($50,000)

$91,913
$61,913

Parameters of distributions
Parameter 1
Parameter 2
$40,000
$50,000
$80,000
$100,000
$32,000
$35,000
5%
8%
50%
2%

Parameter 3
$90,000
$110,000
$38,000

1

2

3

4

5

6

7

8

9

10

$100,000
$35,000
$50,000
$15,000

$105,000
$35,000
$52,500
$17,500

$110,250
$35,000
$55,125
$20,125

$115,763
$35,000
$57,881
$22,881

$121,551
$35,000
$60,775
$25,775

$127,628
$35,000
$63,814
$28,814

$134,010
$35,000
$67,005
$32,005

$140,710
$35,000
$70,355
$35,355

$147,746
$35,000
$73,873
$38,873

$155,133
$35,000
$77,566
$42,566

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