Exam 3: Decision Analysis

Solve this decision tree.

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 optimistic criterion, which alternative is best?

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: Assume that for a randomly selected day, there is a 30% probability of cold weather, 50% probability of mild weather, and 20% probability of warm weather.What alternative is best using EMV?

A company is considering expansion of its current facility to meet increasing demand.A major expansion would cost $500,000, while a minor expansion would cost $200,000.If demand is high in the future, the major expansion would result in an additional profit of $800,000, but if demand is low, then there would be a loss of $500,000.If demand is high, the minor expansion will result in an increase in profits of $200,000, but if demand is low, then there is a loss of $100,000.The company has the option of not expanding.For what probability of a high demand will the company be indifferent between the two expansion alternatives?

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 opportunity loss table. (b)minimum expected opportunity loss (EOL).

Pessimistic decision makers tend to

Nick has plans to open some pizza restaurants, but he is not sure how many to open.He has prepared a payoff table to help analyze the situation. Nick believes there is a 40 percent chance that the market will be good, a 30 percent chance that it will be fair, and a 30 percent chance that it will be poor.A market research firm will analyze market conditions and will provide a perfect forecast (they provide a money back guarantee).What is the most that should be paid for this forecast?

Nick has plans to open some pizza restaurants, but he is not sure how many to open.He has prepared a payoff table to help analyze the situation. As Nick does not know how his product will be received, he assumes that all three states of nature are equally likely to occur.If he uses the equally likely criterion, what decision would he make?

The ABC Co.is considering a new consumer product.They have no idea whether or not the XYZ Co.will come out with a competitive product.If ABC adds an assembly line for the product and XYZ does not follow with a competitive product, their expected profit is $40,000; if they add an assembly line and XYZ does follow, they still expect a $10,000 profit.If ABC adds a new plant addition and XYZ does not produce a competitive product, they expect a profit of $600,000; if XYZ does compete for this market, ABC expects a loss of $100,000. Calculate Hurwicz's criterion of realism using αs of a.0.7, b.0.3, and c.0.1.

The assignment of a utility value of 1 to an alternative implies that the alternative is preferred to all others.

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 with this perfect information?

A manager needs to hire short-term employees to meet production demands.The manager would like to hire one of three possible short-term workers.Ten hours are demanded with 50% probability, 20 hours are demanded with 30% probability, and 30 hours are demanded with 20% probability.The table below represents the alternatives and possible states of nature. Which alternative will minimize the expected monetary value? What is the expected value of perfect information?

A decision maker is assigning equal probabilities to all states of nature in a decision making under uncertainty situation but is uncomfortable doing so.Therefore, this is actually a decision making under risk situation.

In a decision problem where we wish to use Bayes' theorem to calculate posterior probabilities, we should always begin our analysis with the assumption that all states of nature are equally likely, and use the sample information to revise these probabilities to more realistic values.

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: Assume that for a randomly selected day, there is a 30% probability of cold weather, 50% probability of mild weather, and 20% probability of warm weather.What is the EVPI?

The following is a payoff table giving costs for various situations. What decision should be made based on the Laplace criterion?

A second table (an opportunity loss table)must be computed when applying the maximin decision criterion.

Utility values typically range from -1 to +1.

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

A decision table is sometimes called a payout table.