Exam 20: An Introduction to Decision Theory

Of the three components in any decision-making situation, which of the following cannot be controlled?

An expected monetary value can only be greater than or equal to zero.

What is another term for a payoff or consequence? _________________

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Since this seedless watermelon costs $4, will sell for $7, and is highly perishable, he only expects to sell between 6 and 9 of them. What is the payoff value for the purchase of 7 watermelons when the demand is for 6 watermelons?

You have a decision to invest $10,000 in any of four different companies.You estimate that the probabilities that the economy will be favorable or unfavorable, and you estimate the percent returns over the next year. What company should you choose if the economy is favorable?

Optimists advocate a maximin strategy.

In decision theory, a payoff is expressed as a profit or a ______.

You have a decision to invest $10,000 in any of four different companies.You estimate that the probabilities that the economy will be favorable or unfavorable, and you estimate the percent returns over the next year. Based on expected value, what company do you choose?

You have a decision to invest $10,000 in any of four different companies.You estimate that the probabilities that the economy will be favorable or unfavorable, and you estimate the percent returns over the next year. What company should you choose if the economy is unfavorable?

In a payoff table, what is another name for alternatives? _______

A student is planning a trip home for the holidays.The student has three options, car, train, or jet.The decision depends on the weather is either good or bad.In addition, the student estimated the costs for each option.The payoff table follows. What is the value of perfect information?

A decision-maker selects a course of action called an ________________.

You have a decision to invest $10,000 in any of four different companies.You estimate that the probabilities that the economy will be favorable or unfavorable and you estimate the percent returns over the next year. Based on the maximax criterion, what is the choice?

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Since this seedless watermelon costs $4, will sell for $7, and is highly perishable, he only expects to sell between 6 and 9 of them. What is the payoff value for the purchase of 9 watermelons when the demand is for 9 watermelons?

Optimists advocate a maximax strategy.

A table to organize decision-making data, including various acts and possible profits or losses, is called a _______________________.

A decision maker's course of action results in a consequence or payoff.

When all the facts are known in a decision-making situation, it can be said that the decision was made under conditions of _____________.

The national sales manager for "I colored this" (ICT) T-shirts, provides all salespersons with the opportunity loss table showing the potential lost profit for each purchase decision or act from 1 to 4 dozen T-shirts. The probability of demand for each state of nature is also shown. What is the expected opportunity loss of purchasing 1 dozen T-shirts?

A maximax strategy will always choose the act or alternative that