Victors Dilemma

Victor’s Dilemma Analysis Victor’s dilemma constitutes of three major options which incorporates manifold possibilities. The three options Victor can do to the uninsured motorist who hit him are: (1) sue the motorist. (2) threaten to sue. (3) do nothing. The first two options involve risks that Victor should face if he decides to do either of the two. On the other hand, doing nothing is the only option without any risk. Yet, it may not give justice to what happened to Victor. Using the TreeAge Pro software, the different options can best be analyzed by showing the possible financial outcomes of the three. Taking into account the risks involved in the first two options, the probability of earning money by choosing any of the two changes.
In the Figure 1, the three options are substantially evaluated in terms of the probability of each and the payouts each option entails. If Victor chooses to sue the motorist, there is an equal chance of him to win or to lose. However, this option will cost him a flat fee of $500. Losing the case will cost him nothing but the $500 fee for suing. The option of threatening to sue automatically costs Victor $100 for the letter. Further decisions will depend on the motorist’s reaction. If the motorist offers a settlement offer of $1000, this means that there is a higher chance of him winning the case if he chooses to sue. This is represented by a 60/40 probability in the figure. If the motorist ignores the letter, it implies that Victor’s chance of losing the case if he wishes to pursue the case in the court decreases. He may to ignore the case as well. This leads him to doing the third option which is doing nothing. Doing nothing after threatening to sue costs him $100 for the letter. Yet, if he chooses the third option without sending any letter, it would not cost him anything. It even gives him peace, which is valued as $100.
Assumptions
Figure 2 shows the estimated value of each option. Estimated value is the average value considering the different options (Harrison, 2001). For the first option, given a 50/50 chance of wining and losing the case, the EMV is $417. For the second option, the overall EMV is $348. The EMV if the motorist responds to the letter is $706. If Victor decides to sue the motorist after receiving a settlement offer, the EMV of suing is $519. On the other hand, if the motorist ignores the letter, the EMV is $10. Thus, the EMV of pursuing the case in the court is decreased and becomes $122.
Nonetheless, considering the risks involved in the matter, Figure 3 shows a decision tree with the risk preference set at $100. In this case, using the TreeAge Pro software, the values of the first two options decrease heavily. Figure 3 is based on the equivalents of derived certainties of the different options. Meanwhile, Figure 4 shows the decision tree with a more neutral risk preference.
Figure 5 on the other hand shows the Sensitivity analysis on the value of peace. This is shown to interpret analytically the estimated values of the three options in relation to the ValPeace or the value of peace. Apparently, the third option of doing nothing proves to be the best option if Victor prefers peace than the possible financial earnings he may receive.
Recommendations:
Generally, the best option for Victor depends on his preference. If he prefers peace, it would be best for him to do nothing. This third option also appears to be the best alternative if he is afraid of the risks. On the other hand, considering the financial benefits Victor may receive, he may choose to sue or threaten to sue. In the Figure 2, the first option is highlighted since it has the biggest estimated value of $417. However, Figure 4 highlights the threaten-to-sue option as it has the biggest estimated value with the risk preference at $1500.
Considering the four figures presented, the threaten-to-sue option is the broadest option he may take. It may lead him to the first option or to the third option. Hence, the threaten-to-sue option is the best option. With a small amount of payout which is $100, he may choose to pursue the case or not. This depends on the response of the motorist. Hence, it would be beneficial for him to take into account the response of the motorist as it shows his chance of winning a case if he wishes to sue after sending a letter.
Yet, the third option of doing nothing is the best option, considering the positive value of peace it automatically offers. Judging by the calculation presented, it all ends up to Victor’s preference. If he prefers peace over money, the third option is the best. If he values money over peace, I then recommend him the threaten-to-sue option.
Figures
Figure 1
Figure 2
Figure 3 (Risk Preference=$100)
Figure 4 (Risk Preference=$1 500)
Figure 5. Sensitivity Analysis
References
Harrison, K. T. (2001). Making the right decisions. New York: Albeinstein Books.
TreeAge Pro Manual (2006). Williamstown, MA. Chapters 24.