Exam 19: Decision Analysis

Trey Whitmore, Operations Manager at National Consumers, Inc.(NCI), is evaluating alternatives for increasing capacity at NCI's Fountain Hill plant.He has identified four alternatives, and has constructed the following payoff table which shows payoffs (in $1,000,000's)for the three possible levels of market demand: If Trey uses the maximax criterion, the appropriate alternative would be: ___.

Ray Crawford is evaluating investment alternatives to invest $500,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions: If Ray uses the Hurwicz criterion with alpha = 0.1, the appropriate choice is ___.

Ray Crawford is evaluating investment alternatives to invest $500,000 which he inherited from his grandfather.His investment advisor has identified two alternatives and constructed the following tables which show (1)expected profits (in $10,000's)for various market conditions and their probabilities, and (2)the advisor's track record on predicting Bull and Bear markets: If the advisor predicts a Bear market the revised probability of a Bear market, P (S₂|F₂), is ___.

In a decision analysis problem, variables (such as benefits or rewards that result from investments in common stocks or corporate bonds and from a new product launch)which result from selecting a particular decision alternative are called posterior probabilities.

In a decision-making under risk scenario, the expected monetary value of a decision alternative is the weighted average (using the probability of each state of nature as the weight)of the payoffs to the decision alternative in each state of the nature.

Trey Whitmore, Operations Manager at National Consumers, Inc.(NCI), is evaluating alternatives for increasing capacity at NCI's Fountain Hill plant.He has identified four alternatives, and has constructed the following payoff table which shows payoffs (in $1,000,000's)for the three possible levels of market demand: If Trey uses the Hurwicz criterion with alpha = 0.1, the appropriate alternative would be: ___.

Frank Willis has the right to enter a contest where he has a 50% chance of winning $50,000 and a 50% chance of losing $0.It costs Frank nothing to enter the contest.If he is willing to give up his right to enter the contest for a sure payment of $10,000, he is ___.

Dan Hein owns the mineral and drilling rights to a 1,000 hectare tract of land.If he drills a well and does not strike oil his net loss will be $500,000, but if he drills a well and strikes oil his net gain will be $1,000,000.If he does not drill, his loss is the cost of the mineral and drilling rights, which amount to $10,000.For Dan's decision problem, the variable "oil in the tract" is one of the ___.

Consider the following decision table with rewards in $ millions. Using the Hurwicz criterion with alpha = 0.2, the appropriate choice would be ___.

The expected monetary value without information is $60, and the expected monetary payoff with perfect information is $120.The expected value of perfect information is __.

The value of sample information is the ratio of the expected monetary value with information to the expected monetary value without information.

Ray Crawford is evaluating investment alternatives to invest $500,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions: For the combination of 'T-Bills' and 'Neutral', the opportunity loss is ___.

Ray Crawford is evaluating investment alternatives to invest $500,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions: For the 'T-Bills' and 'Bonds' choices, the indifference value of Hurwicz's alpha is ___.

Dianna Young is evaluating a plan to expand the production facilities of International Compressors Company which manufactures natural gas compressors.Dianna feels that the price of coal is a significant factor in her decision, but she cannot control it.For her decision, the different prices of coal represent the ___.

Ray Crawford is evaluating investment alternatives to invest $500,000 which he inherited from his grandfather.His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions: If Ray uses the Hurwicz criterion with alpha = 0.9, the appropriate choice is ___.

Trey Whitmore, Operations Manager at National Consumers, Inc.(NCI), is evaluating alternatives for increasing capacity at NCI's Fountain Hill plant.He has identified four alternatives, and has constructed the following payoff table which shows payoffs (in $1,000,000)for the three possible levels of market demand: The opportunity loss for the combination "Purchase New Equipment" and "High" is ___.

A risk-taker decision maker will bail out of a risky scenario only if the compensation to bail out is more than the expected monetary payoff from the risky scenario.

In a decision-making scenario, if the decision maker knows which state of nature will occur, the scenario is called decision-making under certainty.

In a decision analysis problem, variables (such as investing in common stocks or corporate bonds)which are under the decision maker's control are called decision alternatives.

The concept of utility can be helpful to apply decision analysis techniques to situations which do not lend themselves to expected monetary value analysis.