Exam 19: Decision Theory

Maximin is a criterion used when making decisions under certainty.

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

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 (S_I)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.

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 (S_I)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. Alternative (strategy) 1 110 80 70 Alternative (strategy) 2 60 120 50 The best alternative (course of action)for the EKA manufacturing company,using the maximax criterion,is alternative 1.

The ____________________ criterion for choosing among alternative actions assumes that the state of nature with the best payoff will be experienced.

A person's utility is determined by the preferences he/she exhibits for decision choices involving __________.

The _____________ criterion finds the worst-possible payoff for each alternative and then chooses the alternative that yields the maximum worst-possible payoff.

The expected net gain of sampling equals the ____________________ minus the cost of sampling.

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.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. What is the probability that an insured driver of any age will be involved in an accident?

The expected net gain of sampling equals the expected ______________ minus the cost of sampling.

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:

In utility theory,a(n)__________________ decision maker is an individual who will choose the decision alternative having the highest expected profit.

A set of potential future conditions that will have an effect on the results of a decision is called the states of nature.

Maximax is a criterion used when making decisions under uncertainty.

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.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?

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 (S_I)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.

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.

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.

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 (S_I)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.

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.