Exam 14: Decision Analysis

A convenience store chain is considering opening a new store at one of four locations. They have developed the following multi-criteria scoring model for this problem. What formulas must be placed in cells C13:F16 to compute the weighted scores for use in generating a Weighted Score radar chart?

Exhibit 14.11 The following questions use the information below. A company is planning a plant expansion. They can build a large or small plant. The payoffs for the plant depend on the level of consumer demand for the company's products. The company believes that there is an 72% chance that demand for their products will be high and a 28% chance that it will be low. The company can pay a market research firm to survey consumer attitudes towards the company's products. There is a 76% chance that the customers will like the products and a 24% chance that they won't. The payoff matrix and costs of the two plants are listed below. The company believes that if the survey is favorable there is an 87% chance that demand will be high for the products. If the survey is unfavorable there is only a 25% chance that the demand will be high. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\underline{\text { Demand }}$ Factory Size High Low Plant Cost ( \million ) Large 90 40 5 Small 55 20 1 The company has developed the following conditional probability table for their decision problem. -Refer to Exhibit 14.11. What is P(FH), where F = favorable response and H = high demand?

Exhibit 14.1 The following questions are based on the information below. An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. -Refer to Exhibit 14.1. What decision should be made according to the minimax regret decision rule?

Exhibit 14.8 The following questions use the information below. A company needs to buy a new insurance policy. They have three policies to choose from, A, B and C. The policies differ with respect to price, coverage and ease of billing. The company has developed the following AHP tables for price and summary. The other tables are not shown due to space limitations. -Refer to Exhibit 14.8. What formula should go in cell C7 and get copied to D7:E7 of the Summary worksheet to compute the Weighted Average Score?

Exhibit 14.2 The following questions are based on the information below. An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. A B C D E F G H 1 Payoff Matrix Regret Matrix 2 3 Economy Economy 4 Investment Decline Expand Investment Decline Expand 5 A 0 85 A 6 B 25 65 B 7 C 40 30 C 8 Bank 10 10 Bank -Refer to Exhibit 14.2. What formula should go in cell F5 of the Regret Matrix above to compute the regret value?

An investor is considering 2 investments, A, B, which can be made now. After these investments are made he can pursue choices C, D, E and F depending on whether he chose A or B originally. He has developed the following decision tree to aid in his selection process. What are the correct original and subsequent decisions based on an expected monetary value criteria?

Leaves of a decision tree are also called ____ nodes.

Exhibit 14.1 The following questions are based on the information below. An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. -Refer to Exhibit 14.1. What decision should be made according to the maximax decision rule?

A company is planning a plant expansion. They can build a large or small plant. The payoffs for the plant depend on the level of consumer demand for the company's products. The company believes that there is a 72% chance that demand for their products will be high and a 28% chance that it will be low. The company can pay a market research firm to survey consumer attitudes towards the company's products. There is a 76% chance that the customers will like the products and a 24% chance that they won't. The payoff matrix and costs of the two plants are listed below. The company believes that if the survey is favorable there is an 87% chance that demand will be high for the products. If the survey is unfavorable there is only a 25% chance that the demand will be high. Draw the decision tree for the problem when the survey is performed before the plant size decision is made. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\underline{\text { Demand }}$ Factory Size High Low Plant Cost ( \million ) Large 90 40 5 Small 55 20 1

Exhibit 14.14 The following questions use the Decision Tree model and strategy table information below. -Refer to Exhibit 14.14. You want to conduct a risk analysis on P(G|A) and P(G|B). What Decision Tree model changes must you make to be able to use a strategy table?

Exhibit 14.1 The following questions are based on the information below. An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. -Probabilistic decision rules can be used if the states of nature in a decision problem can be assigned probabilities that represent their likelihood of occurrence. Which of the following is not true regarding the probabilities employed?

Exhibit 14.1 The following questions are based on the information below. An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. -Refer to Exhibit 14.1. What formula should go in cell D5 to implement the maximin decision rule?

Exhibit 14.9 The following questions are based on the information below. An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the investment decision problem. -Refer to Exhibit 14.9. Assume the formula =MAX(B5:C5) was entered in cell D5 and copied to cells D6:D8. What formula should go in cell E5 and get copied to cells E6:E8 to place a "<==" to indicate the choice according to the maximax decision rule?

Exhibit 14.9 The following questions are based on the information below. An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the investment decision problem. -Refer to Exhibit 14.9. What decision should be made according to the maximax decision rule?

Exhibit 14.1 The following questions are based on the information below. An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. -Refer to Exhibit 14.1. What decision should be made according to the maximin decision rule?

The category of decision rules that contains the maximax decision rule is the

Exhibit 14.12 The following questions use the information below. A decision maker is faced with two alternatives. Altermatrve 1: Recerve $4,000 wrth certannty Alternative 2: Receive $80,000 with prabability $p$ and lose $5,000 with probability (1 -p). The decision maker has determined that she is indifferent between the two alternatives when p = 0.7. -Refer to Exhibit 14.12. What is the decision maker's certainty equivalent for this problem?

Which decision rule optimistically assumes that nature will always be "on our side" regardless of what decision we make?

A convenience store chain is considering opening a new store at one of four locations. They have developed the following multi-criteria scoring model for this problem. Complete the follow table to prepare the spreadsheet for use in generating a Weighted Score radar chart?

Exhibit 14.13 The following questions use the information below. A student wants to buy a new car. She has three cars to choose from, A, B and C. The cars differ with respect to price, performance and looks. The student has developed the following AHP tables for price and summary. The other tables are not shown due to space limitations. -Refer to Exhibit 14.13. What formula should go in cell G11 and copied to cells G12:G13 of the Price worksheet to compute the Consistency Measure?