Exam 3: Decision Analysis

The expected value of sample information (EVSI)can be used to

The Hurwicz criterion is also called the criterion of

A risk avoider is a person for whom the utility of an outcome

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

Utility theory provides a decision criterion that is superior to the EMV or EOL in that it may allow the decision maker to incorporate her own attitudes toward risk.

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

Pessimistic decision makers tend to

Optimistic decision makers tend to

Mark M.Upp has just been fired as the university book store manager for setting prices too low (only 20 percent above suggested retail).He is considering opening a competing bookstore near the campus,and he has begun an analysis of the situation.There are two possible sites under consideration.One is relatively small,while the other is large.If he opens at Site 1 and demand is good,he will generate a profit of $50,000.If demand is low,he will lose $10,000.If he opens at Site 2 and demand is high he will generate a profit of $80,000,but he will lose $30,000 if demand is low.He also has decided that he will open at one of these sites.He believes that there is a 50 percent chance that demand will be high.He assigns the following utilities to the different profits: U(50,000)= ? U(-10,000)= 0.22 U(80,000)= 1 U(-30,000)= 0 For what value of utility for $50,000,U(50000),will Mark be indifferent between the two alternatives?

The ABC Co.is considering a new consumer product.They believe there is a probability of 0.4 that 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. (a)Determine the EMV of each decision. (b)Determine the EOL of each decision. (c)Compare the results of (a)and (b). (d)Calculate the EVPI.

In decision theory,we call the payoffs resulting from each possible combination of alternatives and outcomes

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)?

Which of the following is not considered a criteria for decision making under uncertainty?

In constructing a utility curve,

Any problem that can be presented in a decision table can also be graphically portrayed in a decision tree.

Decision trees are particularly useful when

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

The following is an opportunity-loss table. The probabilities for the states of nature A,B,and C are 0.3,0.5,and 0.2,respectively.If a person were to use the expected opportunity loss criterion,what decision would be made?

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.

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?