Question 1

Exponential utility functions indicate that the decision maker is

Accepted Answer

A) risk monitor. 
B) risk averse. 
C) risk neutral. 
D) risk taker. 
A) risk monitor. 
B) risk averse. 
C) risk neutral. 
D) risk taker.

Question 2

Which of the following tools is used to create decision trees in Excel?

Accepted Answer

A) WhatIf 
B) Analytic Solver Platform 
C) GoalSeek 
D) Data Analysis 
A) WhatIf 
B) Analytic Solver Platform 
C) GoalSeek 
D) Data Analysis

Question 3

The ___________ approach evaluates each decision alternative in terms of the best payoff that can occur.

Accepted Answer

A) conservative 
B) optimistic 
C) maximin regret 
D) expected value 
A) conservative 
B) optimistic 
C) maximin regret 
D) expected value

Question 4

Visual Park is considering marketing one of its two television models for coming Christmas season: Model A or Model B. Model A is a unique featured television and appears to have no competition. Estimated profits (in thousand dollars) under high, medium, and low demand are given below: $$\begin{array} { | l | c | c | c | } 
\hline & &  { \text { Demand } } \
\hline \text { Model A } & \text { High } & \text { Medium } & \text { Low } \
\hline \text { Profit } & 1200 & 900 & 500 \
\hline \text { Probability } & 0.2 & 0.6 & 0.2 \
\hline
\end{array}$$ Visual Park is optimistic about the TV Model B. However, the concern is that profitability will be affected if a competitor launches a TV model which has similar features as Model B. Estimated profits (in thousand dollars) with and without competition is as follows: $$\begin{array} { | l | c | c | c | } 
\hline \text { Model B } & & { \text { Demand } } \
\hline \text { With competition } & \text { High } & \text { Medium } & \text { L ow } \
\hline \text { Profit } & 1200 & 900 & 500 \
\hline \text { Probability } & 0.2 & 0.3 & 0.5 \
\hline
\end{array}$$ $$\begin{array} { | l | c | c | c | } 
\hline \text { Model B } & & { \text { Demand } } \
\hline \text { Without competition } & \text { High } & \text { Medium } & \text { Low } \
\hline \text { Profit } & 1600 & 1100 & 700 \
\hline \text { Probability } & 0.6 & 0.2 & 0.2 \
\hline
\end{array}$$ 
a. Develop a decision tree for the Visual Park problem.
b. For planning purposes, Visual Park believes there is a 0.7 probability that its competitor will launch a TV model similar to Model B. Given this probability of competition, the director of planning recommends marketing the Model A. Using expected value, what is your recommended decision?
c. Show a risk profile for your recommended decision.
d. Use sensitivity analysis to determine the probability of competition for Model B would have to be for you to change your recommended decision alternative.

Accepted Answer

a. @#IMG-DLM& b. EV(node 2) = 0.2(1200) + 0.6(900)

Question 5

Jasen Hansen is interested in leasing a sports-utility vehicle and has contacted three automobile dealers for pricing information. Each dealer offered Jasen a 24-month lease with no down payment due at the time of signing. Each lease includes a monthly cost, mileage allowances, and the cost for additional miles and the details are given in the below table. $$\begin{array} { | l | c | c | c | } 
\hline \text { Dealer } & \begin{array} { c } 
\text { Mon thly Cost } \
\text { (\$) }
\end{array} & \text { Mileage Allowances } & \begin{array} { c } 
\text { Cost p er } \
\text { Addition al Mile (\$) }
\end{array} \
\hline \text { True Vehicle } & 300 & 40,000 & 0.30 \
\hline \text { FCO } & 360 & 46,000 & 0.35 \
\hline \text { Jack's Auto } & 410 & 50,000 & 0.15 \
\hline
\end{array}$$ Jasen decided to choose the lease option that will minimize his total 24-month cost. He is not sure how many miles he will drive in the next two years. Hence, for the purpose of decision, assume that Jasen wants to evaluate options of driving 20,000 miles per year, 23,000 miles per year, and 25,000 miles per year. 
a. What is the decision, and what is the chance event?
b. Construct a payoff table for Jasen's problem.

Accepted Answer

a. The decision faced by Jasen is to sel

Question 6

A construction company must decide on the size of the shopping mall, i.e. Large, Medium or Small, that has to be constructed in their acquired plot in the sub-urban area of Seattle. Due to the market conditions, the number of visitors to the mall will be High, Moderate, or Low. The level of response and the size of the mall will decide the return of investment from the mall. The profit payoff table for management (in millions of dollars) after 5 years is provided below.
​
​ $$\begin{array}{l}
                                    \text { Number of Visitors }\
\begin{array} { l c c c } 
\hline  \text { Size of the Mall } & \text { High } & \text { Moderate } & \text { L ow } \
\hline \text { Large } & 25 & 15 & - 20 \
\text { Medium } & 20 & 12 & - 10 \
\text { Small } & 15 & 13 & 5
\end{array}
\end{array}$$ ​
​
The probabilities are P(High) = 0.35, P(Moderate) = 0.40, and P(Low) = 0.25. 
a. Use a decision tree to recommend a decision.
b. Use EVPI to determine whether the construction company should attempt to obtain a better estimate of the response.

Accepted Answer

a. Let d₁ = Size of the shopping mall i

Question 7

__________ is a measure of the total worth of a consequence reflecting a decision maker's attitude toward considerations such as profit, loss, and risk.

Accepted Answer

A) Cost-to-company 
B) Utility 
C) Decision value 
D) Regret 
A) Cost-to-company 
B) Utility 
C) Decision value 
D) Regret

Question 8

A special case of sample information where the information tells the decision maker exactly which state of nature is going to occur is known as_____ information.

Accepted Answer

A) perfect 
B) mutual 
C) conditional 
D) prior 
A) perfect 
B) mutual 
C) conditional 
D) prior

Question 9

For a maximization problem, the optimistic approach often is referred to as the __________ approach.

Accepted Answer

A) minimin 
B) maximin 
C) minimax 
D) maximax 
A) minimin 
B) maximin 
C) minimax 
D) maximax

Question 10

The weighted average of the payoffs for a chance node is known as the

Accepted Answer

A) median value. 
B) variance of the node. 
C) risk measure. 
D) expected value. 
A) median value. 
B) variance of the node. 
C) risk measure. 
D) expected value.

Question 11

A measure of the outcome of a decision such as profit, cost, or time is known as a

Accepted Answer

A) branch. 
B) payoff. 
C) regret. 
D) forecasting index. 
A) branch. 
B) payoff. 
C) regret. 
D) forecasting index.

Question 12

A manufacturing company introduces two product alternatives. The table below provides profit payoffs in thousands of dollars.
​
​ $$\begin{array} { | c | c | c | c | } 
\hline { \text { Bet on } } && { \text { State of Nature (Demand) } } \
\hline  & \mathrm { Up } & \text { Stable } & \text { Down } \
\hline \text { Product A } & 11 & 8 & 8 \
\hline \text { Product B } & 8 & 10 & 12 \
\hline
\end{array}$$ The probabilities for the state of nature are P(Up) = 0.35, P(Stable) = 0.35, and P(Down) = 0.30. 
a. Use a decision tree to recommend a decision.
b. Use EVPI to determine whether the manufacturing company should attempt to obtain a better estimate of the response.

Accepted Answer

a. @#IMG-DLM& EV(node 2) = (0.35)(11) + (0.35)(8)

Question 13

An intersection or junction point of a decision tree is called a(n)

Accepted Answer

A) node. 
B) stem. 
C) intercept. 
D) branch. 
A) node. 
B) stem. 
C) intercept. 
D) branch.

Question 14

___________ is the study of the possible payoffs and probabilities associated with a decision alternative or a decision strategy in the face of uncertainty.

Accepted Answer

A) Risk analysis 
B) Cost analysis 
C) Certainty analysis 
D) Optimization 
A) Risk analysis 
B) Cost analysis 
C) Certainty analysis 
D) Optimization

Question 15

Greentrop Pharmaceutical Products are the world leader in the area of sleep aids. Its major product is "Dozealot". The Research-and-Development Division has defined two alternatives to improve the quality of the product. These alternatives are simple reformulations of the product to minimize the side effects and to improve the product efficacy. To conduct an analysis, management has decided to consider the possible demands for the drug under each alternative. The following payoff table shows the projected profit in millions of dollars.
​ $$\begin{array} { | l | l | l | l | } 
\hline &  { \text { Demand } } \
\hline \text { Decision Alternatives } & \text { Low } & \text { Medium } & \text { High } \
\hline d _ { 1 } & \$ 500 & \$ 350 & \$ 525 \
\hline d _ { 2 } & \$ 875 & \$ 300 & \$ 765 \
\hline
\end{array}$$ 
a. Construct a decision tree for this problem.
b. If the decision maker knows nothing about the probabilities of three states of nature, what is the recommended decision using the optimistic, conservative, and minimax regret approaches?

Accepted Answer

a. @#IMG-DLM& b. @#IMG-DLM& Optimistic approach: select D₂ wh

Question 16

The amount of loss (lower profit or higher cost) from not making the best decision for each state of nature is known as

Accepted Answer

A) best payoff. 
B) opportunity loss. 
C) risk profile. 
D) utility. 
A) best payoff. 
B) opportunity loss. 
C) risk profile. 
D) utility.

Question 17

The utility function for money is a curve that depicts the relationship between

Accepted Answer

A) decision alternative and utility. 
B) branch probabilities and utility. 
C) regret and utility. 
D) monetary value and utility. 
A) decision alternative and utility. 
B) branch probabilities and utility. 
C) regret and utility. 
D) monetary value and utility.

Question 18

A _____ is a decision maker who would choose a guaranteed payoff over a lottery with a better expected payoff.

Accepted Answer

A) risk taker 
B) risk-neutral 
C) risk avoider 
D) risk-creator 
A) risk taker 
B) risk-neutral 
C) risk avoider 
D) risk-creator

Exponential utility functions indicate that the decision maker is

Which of the following tools is used to create decision trees in Excel?

The ___________ approach evaluates each decision alternative in terms of the best payoff that can occur.

__________ is a measure of the total worth of a consequence reflecting a decision maker's attitude toward considerations such as profit, loss, and risk.

A special case of sample information where the information tells the decision maker exactly which state of nature is going to occur is known as_____ information.

For a maximization problem, the optimistic approach often is referred to as the __________ approach.

The weighted average of the payoffs for a chance node is known as the

A measure of the outcome of a decision such as profit, cost, or time is known as a

An intersection or junction point of a decision tree is called a(n)

___________ is the study of the possible payoffs and probabilities associated with a decision alternative or a decision strategy in the face of uncertainty.

The amount of loss (lower profit or higher cost) from not making the best decision for each state of nature is known as

The utility function for money is a curve that depicts the relationship between

A _____ is a decision maker who would choose a guaranteed payoff over a lottery with a better expected payoff.

Introduction

Descriptive Statistics

Data Visualization

Descriptive Data Mining

Probability: an Introduction to Modeling Uncertainty

Statistical Inference

Linear Regression

Time Series Analysis and Forecasting

Predictive Data Mining

Spreadsheet Models

Linear Optimization Models

Integer Linear Optimization Models

Nonlinear Optimization Models

Monte Carlo Simulation

Filters

Exam 15: Decision Analysis

Exponential utility functions indicate that the decision maker is

Which of the following tools is used to create decision trees in Excel?

The ___________ approach evaluates each decision alternative in terms of the best payoff that can occur.

__________ is a measure of the total worth of a consequence reflecting a decision maker's attitude toward considerations such as profit, loss, and risk.

A special case of sample information where the information tells the decision maker exactly which state of nature is going to occur is known as_____ information.

For a maximization problem, the optimistic approach often is referred to as the __________ approach.

The weighted average of the payoffs for a chance node is known as the

A measure of the outcome of a decision such as profit, cost, or time is known as a

An intersection or junction point of a decision tree is called a(n)

___________ is the study of the possible payoffs and probabilities associated with a decision alternative or a decision strategy in the face of uncertainty.

The amount of loss (lower profit or higher cost) from not making the best decision for each state of nature is known as

The utility function for money is a curve that depicts the relationship between

A _____ is a decision maker who would choose a guaranteed payoff over a lottery with a better expected payoff.

Introduction

Descriptive Statistics

Data Visualization

Descriptive Data Mining

Probability: an Introduction to Modeling Uncertainty

Statistical Inference

Linear Regression

Time Series Analysis and Forecasting

Predictive Data Mining

Spreadsheet Models

Linear Optimization Models

Integer Linear Optimization Models

Nonlinear Optimization Models

Monte Carlo Simulation

Filters