Which one of the following models has not been found to be of much practical value in the construction industry?
- AGame theory modelCorrect
- BFriedman’s model
- CGates model
- DCash flow-based model
Solution
Concept
Competitive bidding models
Step-by-step solution
1. Friedman's and Gates' models are probabilistic bidding models used for choosing mark-up. 2. Cash flow-based models are used in practice for financial planning. 3. Game theory models have not proved of much practical value in construction.
Explanation
Game theory models require assumptions about competitors' behaviour that are hard to meet in real bidding, so they have found little practical use compared with the other models.
Why the other options are wrong
Friedman's, Gates' and cash flow-based models are used in practice.
Shortcut
Game theory = academic, little practical use in bidding.
Common mistake
Choosing Friedman's model.
Correct answer: A) Game theory model