Exam 13: Decision Analysis

After all probabilities and payoffs are placed on a decision tree, the decision maker calculates expected values at state of nature nodes and makes selections at decision nodes.

A decision strategy is a sequence of decisions and chance outcomes, where the decisions chosen depend on the yet to be determined outcomes of chance events.

The options from which a decision maker chooses a course of action are

Decision tree probabilities refer to

Circular nodes in a decision tree indicate that it would be incorrect to choose a path from the node.

Square nodes in a decision tree indicate that a decision must be made.

If P(high) = .3, P(low) = .7, P(favorable | high) = .9, and P(unfavorable | low) = .6, then P(favorable) =

To find the EVSI,

Expected value is the sum of the weighted payoff possibilities at a circular node in a decision tree.

Sample information with an efficiency rating of 100% is perfect information.

Which of the methods for decision making without probabilities best protects the decision maker from undesirable results?

Risk analysis helps the decision maker recognize the difference between the expected value of a decision alternative and the payoff that may actually occur.

A decision tree

For a maximization problem, the conservative approach is often referred to as the

A payoff

States of nature should be defined so that one and only one will actually occur.

Sensitivity analysis considers

Making a good decision

EVPI equals the expected regret associated with the minimax decision.

EVPI $\geq$ EVSI