Exam 21: Decision Analysis on Website

Exhibit 21-2 Below you are given a payoff table involving three states of nature and two decision alternatives. The probability that S₁ will occur is 0.1; the probability that S₂ will occur is 0.6. -Refer to Exhibit 21-2. The expected value of perfect information equals

Information about a state of nature is known as

Exhibit 21-3 Below you are given a payoff table involving two states of nature and three decision alternatives. The probability of the occurrence of state of nature S₁ is 0.4. -Refer to Exhibit 21-3. The expected monetary value of the best alternative equals

Consider the following profit payoff table. What should the probabilities of S1 and S2 be so that the expected monetary values of the two decision alternatives equal one another?

The result obtained when a decision alternative is chosen and a chance event occurs is known as

Exhibit 21-3 Below you are given a payoff table involving two states of nature and three decision alternatives. The probability of the occurrence of state of nature S₁ is 0.4. -Refer to Exhibit 21-3. The expected value of perfect information equals

The probability of the states of nature, after use of Bayes' theorem to adjust the prior probabilities based upon given indicator information, is called

The expected opportunity loss of the best decision alternative is the

Exhibit 21-5 Below you are given a payoff table involving three states of nature and three decision alternatives. The probability of occurrence of S₁ is 0.2 and the probability of occurrence of S₂ is 0.3. -Refer to Exhibit 21-5. The expected monetary value of alternative C is

Nodes indicating points where an uncertain event will occur are known as

The probability of both sample information and a particular state of nature occurring simultaneously is

Assume you are faced with the following decision alternatives and two states of nature. The payoff table is shown below. The probability of state of nature 1 is P(s₁) = 0.42. a.Determine the expected value of each alternative. b.Which decision is the optimal decision? c.Determine the expected value with perfect information. d.Compute the expected value of perfect information.

The probabilities of states of nature after revising the prior probabilities based on given indicator information are

Exhibit 21-5 Below you are given a payoff table involving three states of nature and three decision alternatives. The probability of occurrence of S₁ is 0.2 and the probability of occurrence of S₂ is 0.3. -Refer to Exhibit 21-5. The expected value of perfect information is

Assume you have a sum of money available that you would like to invest in one of the three available investment plans: stocks, bonds, or money market. The conditional payoffs of each plan under two possible economic conditions are shown below. The probability of the occurrence of economic condition I is 0.28. a.Compute the expected value of the three investment options. Which investment option would you select, based on the expected values? b.Compute the expected value with perfect information (i.e., expected value under certainty). c.Compute the expected value of perfect information (EVPI).

For a decision alternative, the weighted average of the payoffs is known as

Exhibit 21-1 Below you are given a payoff table involving two states of nature and three decision alternatives. The probability of occurrence of S₁ = 0.2. -Refer to Exhibit 21-1. The expected monetary value of the best alternative is

A tabular representation of the payoffs for a decision problem is a

An automobile manufacturer must make an immediate decision on the car size that should account for the majority of the firm's production two years from now. The firm perceives three possible states of nature at that time: S1, gasoline will be rationed; S2, gasoline will be readily available at close to current prices; and S3, gasoline will be readily available, but at much higher prices. The firm has determined the following profit payoff table (in $1,000s). a.An economist at the auto company has advised the firm that the probabilities of the states of nature are P(S₁) = .2, P(S₂) = .5, and P(S₃) = .3. Find the expected monetary value for the three decisions. b.Which decision should be chosen under the expected monetary value criterion? c.Determine the expected value of perfect information.

The process of revising prior probabilities to create posterior probabilities based on sample information is a