Exam 19: Decision Analysis

Dianna Ivy is evaluating a plan to expand the production facilities of International Compressors Company which manufactures natural gas compressors.Dianna feels that the price of coal is a significant factor in her decision, but she cannot control it.She is able to estimate how much the company would make under various prices of coal.Her estimates would represent the ___________.

61.Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$ Investment Bull Neutral Bear T-Bills 3 3 3 Stocks 21 11 -30 Bonds 15 4 -3 Mixture 13 6 -10 If Ray uses the maximin criterion, the appropriate choice would be ________.

Trey Leeman, Operations Manager at National Consumers, Inc.(NCI), is evaluating alternatives for increasing capacity at NCI's Fountain Hill plant.He has identified four alternatives, and has constructed the following payoff table which shows payoffs (in $1,000,000's)for the three possible levels of market demand. Market Demands Alternative Low Medium High Lease New Equipment -0.5 2 4 Purchase New Equipment -3 0.5 6 Add Third Shift 0.5 0.75 1 Do Nothing 0 0 0 The opportunity loss for the combination "Purchase New Equipment" and "Low" is ____.

Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather.His investment advisor has identified two alternatives and constructed the following tables which show (1)expected profits (in $10,000's)for various market conditions and their probabilities, and (2)the advisor's track record on predicting Bull and Bear markets. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Actual Market }$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Market Condition }$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text {Advisor's}$$\quad$$\text {Condition}$ Investment Bull (0.8) Bear (0.2) EMV Bonds 12 -3 9 Stocks 25 -30 14 Prediction Bull Bear Bull 0.9 0.3 Bear 0.1 0.7 If the advisor predicts a Bull market the EMV of the Bonds alternative, using revised probabilities, is closest to ________.

In a decision analysis problem, variables (such as investing in common stocks or corporate bonds)which are under the decision maker's control are called _________.

Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following table which shows expected profits (in $10,000's)for various market conditions and their probabilities. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$ Investment Bull(.5) Neutral(.3) Bear(.2) T-Bills 3 3 3 Stocks 21 11 -30 Bonds 15 4 -3 Mixture 13 6 -10 The EMV of investing in Mixture is ________.

Frank Forgione has the right to enter a contest where he has a 50% chance of winning $50,000 and a 50% chance of losing $0.It costs Frank nothing to enter the contest.If he is willing to give up his right to enter the contest for a sure payment of $10,000, he is ___.

Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather.His investment advisor has identified two alternatives and constructed the following tables which show (1)expected profits (in $10,000's)for various market conditions and their probabilities, and (2)the advisor's track record on predicting Bull and Bear markets. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Actual Market }$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Market Condition }$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text {Advisor's}$$\quad$$\text {Condition}$ Investment Bull (0.8) Bear (0.2) EMV Bonds 12 -3 9 Stocks 25 -30 14 Prediction Bull Bear Bull 0.9 0.3 Bear 0.1 0.7 If the advisor predicts a Bear market the EMV of the Stocks alternative, using revised probabilities, is closest to ________.

You are evaluating investment alternatives for a ski resort.There are four alternative investments and their payoffs (in $10,000s)are shown in the following table, depending on the snow conditions for the next season. Snow Conditions Investment Good Bad 3 1 8 0 12 -4 18 -12 If you use the EMV criterion, the probability that the snow conditions are good is p, and you decide investment d₃, what is the expected value of perfect information?

In a decision-making scenario, if it is not known which of the states of nature will occur and further if the probabilities of occurrence of the states are also unknown, the scenario is called decision-making under double risk.

Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following table which shows expected profits (in $10,000's)for various market conditions and their probabilities. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$ Investment Bull(.5) Neutral(.3) Bear(.2) T-Bills 3 3 3 Stocks 21 11 -30 Bonds 15 4 -3 Mixture 13 6 -10 The expected value of perfect information is ________.

A particular electronic component is produced at two plants for an electronics manufacturer.Plant A produces 70% of the components used and the remainder are produced by plant B.The probability that a component is defective is 0.02 if it is produced at plant A and 0.01 if it is produced at plant B.If the component is defective the revised probability it is produced at plant A, P (A|D), is closest to ________

Melissa Rossi, Product Manager at National Consumers, Inc.(NCI), is evaluating alternatives for introducing a new package for toothpaste.She has identified four alternative markets, and has constructed the following table which shows NCI's rewards (in $1,000,000's)for various levels of acceptance by the markets and their probabilities. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Market Acceptance }$ Market Low (.3) Medium (.4) High (.3) Northeast Only -0.7 0 1 Southeast Only -0.2 0.2 0.8 National -1.5 -0.2 2 None (don't introduce the new package) 0 0 0 The expected monetary payoff with perfect information is ________.

Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather.His investment advisor has identified two alternatives and constructed the following tables which show (1)expected profits (in $10,000's)for various market conditions and their probabilities, and (2)the advisor's track record on predicting Bull and Bear markets. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Actual Market }$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Market Condition }$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text {Advisor's}$$\quad$$\text {Condition}$ Investment Bull (0.8) Bear (0.2) EMV Bonds 12 -3 9 Stocks 25 -30 14 Prediction Bull Bear Bull 0.9 0.3 Bear 0.1 0.7 The probability that the advisor predicts a Bull market and the Bull market is the actual condition p(F₁?S₁) is ________.

Trey Leeman, Operations Manager at National Consumers, Inc.(NCI), is evaluating alternatives for increasing capacity at NCI's Fountain Hill plant.He has identified four alternatives, and has constructed the following payoff table which shows payoffs (in $1,000,000's)for the three possible levels of market demand. Market Demands Alternative Low Medium High Lease New Equipment -0.5 2 4 Purchase New Equipment -3 0.5 6 Add Third Shift 0.5 0.75 1 Do Nothing 0 0 0 The opportunity loss for the combination "Purchase New Equipment" and "High" is ___.

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$ Investment Bull Neutral Bear T-Bills 3 3 3 Stocks 21 11 -30 Bonds 15 4 -3 Mixture 13 6 -10 For the 'T-Bills' and 'Bonds' choices, the indifference value of Hurwicz's alpha is _____.

The expected value of sample information is the difference between the expected monetary value with information to the expected monetary value without information.

A random person is selected from a large population in which 5% are users of a dangerous illegal drug.A drug test that correctly identifies users 99% of the times and nonusers 95% of the time (this percentage is called "specificity" of the test)is administered to this individual and gives a positive result.What specificity would actually be required to conclude that the probability that this individual is actually a user of this drug is 0.75?

In a decision-making under uncertainty scenario, the decision maker chooses the decision alternative that has the minimum expected (i.e., probability-weighted)payoff among all the available alternatives.

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$$\text { Market Condition }$ Investment Bull Neutral Bear T-Bills 3 3 3 Stocks 21 11 -30 Bonds 15 4 -3 Mixture 13 6 -10 If Ray uses the Hurwicz criterion with alpha = 0.9, the appropriate choice is ______.