Exam 3: Decision Analysis

The maximin decision criterion is used by pessimistic decision makers and minimizes the maximum outcome for every alternative.

By studying a person's Utility Curve, one can determine whether the individual is a risk seeker, risk avoider, or is indifferent to risk.

Before a marketing research study was done, John Colorado believed there was a 50/50 chance that his music store would be a success.The research team determined that there is a 0.9 probability that the marketing research will be favorable given a successful music store.There is also a 0.8 probability that the marketing research will be unfavorable given an unsuccessful music store. (a)If the marketing research is favorable, what is the revised probability of an unsuccessful music store? (b)If the marketing research is unfavorable, what is the revised probability of an unsuccessful music store?

What makes the difference between good decisions and bad decisions?

Consider the following payoff table. Based upon these probabilities, a person would select Alternative 3.Suppose there is concern about the accuracy of these probabilities.A few of the analysts feel that the likelihood of State 1 is higher and that the likelihood of State 2 is much lower.If the likelihood of State 2 is reduced at the expense of State 1, how much lower can State 2's likelihood fall before Alternative 3 is no longer optimal?

A concessionaire for the local ballpark has developed a table of conditional values for the various alternatives (stocking decision)and states of nature (size of crowd).All values are in US Dollars. If the probabilities associated with the states of nature are 0.30 for a large crowd, 0.50 for an average crowd, and 0.20 for a small crowd, determine: (a)the alternative that provides the greatest expected monetary value (EMV). (b)the expected value of perfect information (EVPI).

Optimistic decision makers tend to

An analytic and systematic approach to the study of decision making is referred to as

EOL will always result in the same decision as the maximum EMV with revenue data, but will pick the worst alternative with cost data.

Expected monetary value (EMV)is the average or expected monetary outcome of a decision if it can be repeated a large number of times.

In the construction of decision trees, which of the following shapes represents a decision node?

All decisions that result in a favorable outcome are considered to be good decisions.

The following is a payoff table giving profits for various situations. If a person selected Alternative 1, what would the expected profit be?

Utilization of Bayes' theorem requires the use of all but

The following is a payoff table giving profits for various situations. The probabilities for states of nature A, B, and C are 0.3, 0.5, and 0.2, respectively.If a perfect forecast of the future were available, what is the expected value of perfect information (EVPI)?

Expected monetary value (EMV)is

A market research survey is available for $10,000.Using a decision tree analysis, it is found that the expected monetary value with no survey is $62,000.If the expected value of sample information is -$7,000, what is the expected monetary value with the survey?

The concessionaire for Carnegie Hall has developed a table of conditional values for the various alternatives (stocking decision)and states of nature (size of crowd). The concessionaire has no idea what sort of crowd might materialize - it has been decades since the Del Aires last performed together, but there has been a resurgence in interest thanks to a re-release of the classic movie Horror of Party Beach.Determine: (a)the optimal alternative if the concessionaire is an optimist. (b)the optimal alternative if the concessionaire is a pessimist.

A plant manager considers the operational cost per hour of five machine alternatives.The cost per hour is sensitive to three potential weather conditions: cold, mild, and warm.The following table represents the operations cost per hour for each alternative-state of nature combination: Using the pessimistic criterion, which alternative is best?

Expected monetary value (EMV)is the payoff you should expect to occur when you choose a particular alternative.