Exam 22: Decision-Making Tools

Earl Shell owns his own Sno-Cone business and lives 30 miles from a beach resort.The sale of Sno-Cones is highly dependent upon his location and upon the weather.At the resort,he will profit $110 per day in fair weather,$20 per day in foul weather.At home,he will profit $70 in fair weather,$50 in foul weather.Assume that on any particular day,the weather service suggests a 60% chance of fair weather. a.Construct Earl's payoff table. b.What decision is recommended by the expected monetary value criterion? c.What is the EVPI?

If a decision maker knows for sure which state of nature will occur,he/she is making a decision under certainty.

The expected value with perfect information assumes that all states of nature are equally likely.

Decision trees:

The expected monetary value of a decision alternative is the sum of all possible payoffs from the alternative,each weighted by the probability of that payoff occurring.

The likelihood that a decision maker will ever receive a payoff precisely equal to the EMV when making any one decision is:

Identify,in order,the six steps of analytical decision making.

When solving decision trees,what phrase represents the act of dropping an alternative from consideration because it is less favorable than another available option?

The campus bookstore sells stadium blankets embroidered with the university crest.The blankets must be purchased in bundles of one dozen each.Each blanket in the bundle costs $65,and will sell for $90.Blankets unsold by homecoming will be clearance priced at $20.The bookstore estimates that demand patterns will follow the table below. a.Build the decision table. b.What is the maximum expected monetary value? c.How many bundles should be purchased?

The campus bookstore sells highlighters that it purchases by the case.Cost per case,including shipping and handling,is $200.Revenue per case is $350.Any cases unsold will be discounted and sold at $175.The bookstore has estimated that demand will follow the pattern below a.Construct the bookstore's payoff table. b.How many cases should the bookstore stock in order to maximize expected profit? c.How would your answer differ if the clearance price were not $175 per case but $225 per case? (It is not necessary to re-solve the problem to answer this. )

The expected value with perfect information:

An example of expected monetary value would be the payoff from selecting a particular alternative when a particular state of nature occurs.

The EMV of a decision with three states of nature is $33,000.If the profit/value under the states of nature A,B,and C is $10,000,$20,000,and $50,000,respectively,and states B and C have equal probabilities,determine the likelihood of state of nature A.

A(n)________ is a tabular means of analyzing decision alternatives and states of nature.

What is a conditional value?

A primary advantage of decision trees compared to decision tables is that decision trees:

In the context of decision-making,define a state of nature.

How is the expected value of perfect information (EVPI)found?

What is the EMV for Option 2 in the following decision table?

All EXCEPT which of the following steps are taken to analyze problems with decision trees?