Question 1

When making a decision in an environment of ________________,the decision maker knows which of the states of nature will actually occur.

Accepted Answer

A) Certainty 
B) Uncertainty 
C) Risk 
D) Optimism 
A) Certainty 
B) Uncertainty 
C) Risk 
D) Optimism A

Question 2

Alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (SI)represent the levels of demand for the company products.S1,S2,and S3 characterize high,medium,and low demand,respectively.The payoff values are in thousands of dollars.

Accepted Answer

$$\begin{array} { l c c c } 
& { \text { States of nature } } \
& s _ { 1 } & s _ { 2 } & s _ { 3 } \
\text { Alternative (strategy) 1 } & 110 & 80 & 70 \
\text { Alternative (strategy) 2 } & 60 & 120 & 50
\end{array}$$ 
Determine the best alternative (course of action)for the EKA manufacturing company using the maximin criterion.
strategy 1
Feedback:(Min.payoff for alternative 1 = 70)> (Min.payoff for alternative 2 = 50).Thus,choose strategy 1.

Question 3

The _______________________ is the difference between the expected payoff of sampling and the expected payoff based on expected monetary criterion and prior probabilities.

Accepted Answer

A) Maximax criterion 
B) Maximin criterion 
C) Expected utility 
D) Expected value of perfect information 
E) Expected value of sample information 
A) Maximax criterion 
B) Maximin criterion 
C) Expected utility 
D) Expected value of perfect information 
E) Expected value of sample information E

Question 4

__________________ statistics is an area of statistics that uses Bayes' Theorem to update prior belief about a probability or population parameter to a posterior belief.

Accepted Answer

A) Bayesian 
B) Utility theory 
C) Preposterior analysis 
D) Risk theory 
A) Bayesian 
B) Utility theory 
C) Preposterior analysis 
D) Risk theory

Question 5

An automobile insurance company is in the process of reviewing its policies.Currently,drivers under the age of 25 have to pay a premium.The company is considering increasing the premium charged to drivers under 25.According to company records,35 percent of the insured drivers are under the age of 25.The company records also show that 280 of the 700 insured drivers under the age of 25 have been involved in at least one automobile accident.On the other hand,only 130 of the 1300 insured drivers 25 years or older have been involved in at least one automobile accident.
An accident has just been reported.What is the probability that the insured driver is under the age of 25?

Accepted Answer

A) 35% 
B) 20.5% 
C) 14% 
D) 68.3% 
E) 40% 
A) 35% 
B) 20.5% 
C) 14% 
D) 68.3% 
E) 40%

Question 6

The expected value criterion is used for decision making under __________________.

Accepted Answer

A) Certainty 
B) Uncertainty 
C) Risk 
D) Alternatives 
A) Certainty 
B) Uncertainty 
C) Risk 
D) Alternatives

Question 7

Decision makers in business organizations make most decisions in environments that involve some degree of ___________________.

Accepted Answer

A) Risk 
B) Utility 
C) Certainty 
D) Uncertainty 
A) Risk 
B) Utility 
C) Certainty 
D) Uncertainty

Question 8

The quality control manager for NKA Inc.must decide whether to accept (alternative 1),further analyze (alternative 2),or reject (alternative 3)a shipment (lot)of incoming material.The historical data indicate that there is a 30 percent chance that the lot is poor quality (S1),50 percent chance that the lot is fair quality (S2),and 20 percent chance that the lot is good quality (S3).Assume the following payoff table is available.The values in the payoff table are in thousands of dollars.

Accepted Answer

\[\begin{array} { l l c c } 
& { \text {

Question 9

If the decision maker has no knowledge about the likelihood of any of the states of nature occurring,then it can be stated that the decision maker is operating in an environment of:

Accepted Answer

A) Certainty. 
B) Uncertainty. 
C) Risk. 
D) Optimism. 
A) Certainty. 
B) Uncertainty. 
C) Risk. 
D) Optimism.

Question 10

_______________________ is a diagram that assists the decision maker in analyzing a decision problem.

Accepted Answer

A) Bayes' Theorem 
B) A decision tree 
C) A utility curve 
D) Maximax 
A) Bayes' Theorem 
B) A decision tree 
C) A utility curve 
D) Maximax

Question 11

The __________________ criterion is preferred by optimistic decision makers.

Accepted Answer

A) Maximax 
B) Maximin 
C) Utility theory 
D) Risk theory 
A) Maximax 
B) Maximin 
C) Utility theory 
D) Risk theory

Question 12

When applying Bayes' Theorem,the sample information is combined with prior probabilities to obtain ___________________ probabilities.

Accepted Answer

A) Utility 
B) Maximax 
C) Posterior 
D) Preposterior 
A) Utility 
B) Maximax 
C) Posterior 
D) Preposterior

Question 13

The _______________________ is the difference between the expected payoff that would be realized if the best alternative action were selected if we knew which state of nature would occur and the expected payoff under risk.

Accepted Answer

A) Maximax criterion 
B) Maximin criterion 
C) Expected utility 
D) Expected value of perfect information 
E) Expected value of sample information 
A) Maximax criterion 
B) Maximin criterion 
C) Expected utility 
D) Expected value of perfect information 
E) Expected value of sample information

Question 14

Alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (SI)represent the levels of demand for the company products.S1,S2,and S3 characterize high,medium,and low demand,with probabilities of .3,.6,and .1,respectively.The payoff values are in thousands of dollars. $\begin{array}{lccc} 
&&\underline{{\text { States of nature }}} \
& s_{1} & s_{2} & s_{3} \
\text { Alternative (strategy) } 1 & 110 & 80 & 70 \
\text { Alternative (strategy) } 2 & 60 & 120 & 50
\end{array}$

The management believes that the weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports show 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.What is the maximum amount that the company would be willing to pay for perfect information?

Accepted Answer

A) $95,000 
B) $112,000 
C) $7,000 
D) $24,000 
E) $17,000 
A) $95,000 
B) $112,000 
C) $7,000 
D) $24,000 
E) $17,000

Question 15

The quality control manager for NKA Inc.must decide whether to accept (alternative 1),further analyze (alternative 2),or reject (alternative 3)a shipment (lot)of incoming material.The historical data indicate that there is a 30 percent chance that the lot is poor quality (S1),50 percent chance that the lot is fair quality (S2),and 20 percent chance that the lot is good quality (S3).Assume the following payoff table is available.The values in the payoff table are in thousands of dollars.

Accepted Answer

\[\begin{array} { l l c c } 
&  { \text

Question 16

A tire manufacturer needs to determine the amount of production for the coming month (high vs.low).The level of production largely depends on the level of demand.For this situation,the amount of production constitutes the ___________________ actions.

Accepted Answer

A) Alternative 
B) Utility 
C) Certainty 
D) Uncertainty 
A) Alternative 
B) Utility 
C) Certainty 
D) Uncertainty

Question 17

The utility curve given below represents the preferences of a _________________ decision maker.

Accepted Answer

A) Risk averse 
B) Risk neutral 
C) Risk seeking 
D) None of these 
A) Risk averse 
B) Risk neutral 
C) Risk seeking 
D) None of these

Question 18

In utility analysis,a utility curve that shows a rapid increase in utility for initial amounts of money followed by a gradual leveling off for larger amount of money is appropriate for a risk _________ decision maker.

Accepted Answer

A) Seeking 
B) Averse 
C) Neutral 
D) None of these 
A) Seeking 
B) Averse 
C) Neutral 
D) None of these

Question 19

An investor is looking at three possible investments: growth stock,blue chip stock,or municipal bonds.The investment performance will vary depending on the investment market condition of bull (market rising),flat,or bear (market falling).The investment return for each investment for the corresponding market conditions is given below:

Accepted Answer

\[\begin{array} { | l | l | l | l | } 
\

Question 20

The quality control manager for NKA Inc.must decide whether to accept (alternative 1),further analyze (alternative 2),or reject (alternative 3)a shipment (lot)of incoming material.The historical data indicate that there is a 30 percent chance that the lot is poor quality (S1),50 percent chance that the lot is fair quality (S2),and 20 percent chance that the lot is good quality (S3).Assume the following payoff table is available.The values in the payoff table are in thousands of dollars.

Accepted Answer

\[\begin{array} { l l c c } 
& { \text {

When making a decision in an environment of ________________,the decision maker knows which of the states of nature will actually occur.

The _______________________ is the difference between the expected payoff of sampling and the expected payoff based on expected monetary criterion and prior probabilities.

__________________ statistics is an area of statistics that uses Bayes' Theorem to update prior belief about a probability or population parameter to a posterior belief.

The expected value criterion is used for decision making under __________________.

Decision makers in business organizations make most decisions in environments that involve some degree of ___________________.

If the decision maker has no knowledge about the likelihood of any of the states of nature occurring,then it can be stated that the decision maker is operating in an environment of:

_______________________ is a diagram that assists the decision maker in analyzing a decision problem.

The __________________ criterion is preferred by optimistic decision makers.

When applying Bayes' Theorem,the sample information is combined with prior probabilities to obtain ___________________ probabilities.

The _______________________ is the difference between the expected payoff that would be realized if the best alternative action were selected if we knew which state of nature would occur and the expected payoff under risk.

A tire manufacturer needs to determine the amount of production for the coming month (high vs.low).The level of production largely depends on the level of demand.For this situation,the amount of production constitutes the ___________________ actions.

The utility curve given below represents the preferences of a _________________ decision maker.

In utility analysis,a utility curve that shows a rapid increase in utility for initial amounts of money followed by a gradual leveling off for larger amount of money is appropriate for a risk _________ decision maker.

Statistical Inferences for Population Variances

Experimental Design and Analysis of Variance

Chi-Square Tests

Simple Linear Regression Analysis

Multiple Regression and Model Building

Time Series Forecasting and Index Numbers

Process Improvement Using Control Charts

Nonparametric Methods

Filters

Exam 19: Decision Theory

When making a decision in an environment of ________________,the decision maker knows which of the states of nature will actually occur.

The _______________________ is the difference between the expected payoff of sampling and the expected payoff based on expected monetary criterion and prior probabilities.

__________________ statistics is an area of statistics that uses Bayes' Theorem to update prior belief about a probability or population parameter to a posterior belief.

The expected value criterion is used for decision making under __________________.

Decision makers in business organizations make most decisions in environments that involve some degree of ___________________.

If the decision maker has no knowledge about the likelihood of any of the states of nature occurring,then it can be stated that the decision maker is operating in an environment of:

_______________________ is a diagram that assists the decision maker in analyzing a decision problem.

The __________________ criterion is preferred by optimistic decision makers.

When applying Bayes' Theorem,the sample information is combined with prior probabilities to obtain ___________________ probabilities.

The _______________________ is the difference between the expected payoff that would be realized if the best alternative action were selected if we knew which state of nature would occur and the expected payoff under risk.

A tire manufacturer needs to determine the amount of production for the coming month (high vs.low).The level of production largely depends on the level of demand.For this situation,the amount of production constitutes the ___________________ actions.

The utility curve given below represents the preferences of a _________________ decision maker.

In utility analysis,a utility curve that shows a rapid increase in utility for initial amounts of money followed by a gradual leveling off for larger amount of money is appropriate for a risk _________ decision maker.

Statistical Inferences for Population Variances

Experimental Design and Analysis of Variance

Chi-Square Tests

Simple Linear Regression Analysis

Multiple Regression and Model Building

Time Series Forecasting and Index Numbers

Process Improvement Using Control Charts

Nonparametric Methods

Filters