You are a risk manager in a manufacturing company and one of your key responsibilities is securing of property insurance coverage to provide protection against damage caused by “acts of God,” such as earthquakes, hurricanes, floods, etc. You begin the process with due diligence, which is focused on estimating the chances of a single “act of God” occurring in the year, as well as chances of two or more “acts of God” occurring in the year (also in the course of the subsequent year). Consider the different approaches to assigning probabilities to “acts of God.” Which of the approaches will you be most inclined to choose and why? Which of those approaches will you be least inclined to choose and why?
You are a marketing manager for a company that makes ready-to-eat breakfast cereals. Your company recently initiated a loyalty program for consumers, which resulted in a large purchaser database. The brand managers are eager to mine the available data, which they can use to design more effective promotional programs. The management of your organization believes that to be effective, these programs have to take into account significant cross-region (i.e., the East Coast, the West Coast, the Midwest, and the South) purchase differences. Your task is to test the hypothesis that there are significant cross-region differences in purchasing patterns. Describe how you would use hypothesis testing to validate the management’s belief of cross-region purchase differences. In addressing this, be sure to answer the following questions:
What is the goal of testing this hypothesis?
What would be the mechanics of this hypothesis testing process?
Why go through the trouble of hypothesis testing in this situation?
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