Exam 3: Decision Analysis

Any problem that can be represented in a decision tree can be easily portrayed in a decision table.

EVPI (expected value of perfect information) is a measure of the maximum EMV as a result of additional information.

The following is a payoff table. What decision should be made based on the minimax regret criterion?

To determine the effect of input changes on decision results, we should perform a sensitivity analysis.

A market research survey is available for $5,000. Using a decision tree analysis, it is found that the expected monetary value with no survey is $49,000. If the expected value of sample information is -$4,000, what is the expected monetary value with the survey?

Bayes' theorem enables decision makers to revise probabilities based on

In decision making under ________, there are several possible outcomes for each alternative, and the decision maker does not know the probabilities of the various outcomes.

A company is considering producing a new children's bar soap. A market research firm has told the company that if they perform a survey, a positive survey of a favorable market occurs 65 percent of the time. That is, P(positive survey ∣ favorable market) = 0.65. Similarly, 40 percent of the time the survey falsely predicts a favorable market; thus, P(positive survey ∣ unfavorable market) = 0.40. These statistics indicate the accuracy of the survey. Prior to contacting the market research firm, the company's best estimate of a favorable market was 50 percent. So, P(favorable market) = 0.50 and P(unfavorable market) = 0.50. Using Bayes' theorem, determine the probability of a favorable market given a favorable survey.

Which of the following is not a characteristic of a good decision?

The Hurwicz criterion coefficient of realism measures the decision maker's degree of ________.

Before a market survey is done, there is a 50/50 chance that a new soccer supply store would be a success. The people doing the survey have determined that there is a 0.9 probability that the survey will be favorable given a successful store. There is also a 0.75 probability that the survey will be unfavorable given an unsuccessful store. What is the probability that the survey will be unfavorable?

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 α's of a. 0.7, b. 0.3, and c. 0.1.

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 a successful music store? (b) If the marketing research is unfavorable, what is the revised probability of a successful music store?

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

Utility theory may help the decision maker include the impact of qualitative factors that are difficult to include in the EMV model.

Utility values typically range from

When using the EOL as a decision criterion, the best decision is the alternative with the largest EOL value.

In decision making under ________, there are several possible outcomes for each alternative, and the decision maker knows the probability of occurrence of each outcome.

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

A utility curve that shows utility increasing at an increasing rate as the monetary value increases represents the utility curve of a risk seeker.