Exam 6: Decision Models

Theoretically, a payoff table is not limited to two dimensions.

Define the three terms in the equation EVPI = ERPI - EREV.

The world is not perfect, and we can never know the future with real certainty.Why, then, should we use the expected value of perfect information (EVPI)?

The Expected Value of Perfect Information is always a value greater than 0.

"Uncertainty" implies probabilities; "risk" implies ignorance.

The expected value criterion ignores the decision maker's attitude toward risk.

The states of nature in a payoff table should be mutually exclusive and collectively exhaustive.

What is the interpretation of the shadow price values in a Game Theory linear programming model sensitivity report?

EVPI is the smallest expected regret of any decision alternative.

What are the two steps to calculate regret values for states of nature?

Consider the payoff table in problem 7.The optimal decision under the maximin criterion is:

Model the World Series as a decision tree.The Diamondbacks are playing the Yankees in a best of 7 series.That is, the series ends when one team wins 4 games.Assume each team has an equal chance to win each game.

In a two-person, zero-sum game, where you have two possible strategies, S1 and S2, solving the model yields the answer S1 = .60 and S2 = .40.What does this mean?

Using the table below, which plan has the greatest efficiency? Expected Return Expected Return Expected Return With Sample With Perfect Using Expected Information Information Value (EREV) I 15 20 10 II 15 20 12 III 18 25 10 IV 16 20 10

If costs/losses, rather than profits/gains, are concerned, the minimax criterion is equivalent to:

If it is assumed that each possible state of nature has an equal likelihood of occurrence, the expected value criterion will yield the same result as:

Consider a decision making problem with three states of nature: S1, S2, and S3, for which P(S1) = .1 and P(S2) = .3.Suppose also that there are two possible sample indicators, I1 and I2, and the following conditional probabilities hold: P(I1|S1) = .2, P(I1|S2) = .4, and P(I1|S3) = .6.The P(S2|I2) is:

Consider the payoff table in problem 7.The optimal decision under the principle of insufficient reason criterion is:

The maximin payoff criterion best serves what type of person?

When using the maximax criterion, the optimal decision alternative may be determined by simple inspection of the payoff table.