Exam 19: Decision Theory

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,with probabilities of .3,.6,and .1,respectively.The payoff values are in thousands of dollars. Alternative (strategy) 1 110 80 70 Alternative (strategy) 2 60 120 50 The management believes that 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.The estimated probabilities of poor weather conditions given different levels of demand are presented below. $\text { P(Poor } \mid \text { High } ) = .2 , P ( \text { Poor } \mid \text { Medium } ) = .5 , P ( \text { Poor } \mid \text { Low } ) = .8$ What is the probability of high demand given that the weather conditions are poor.

The _________ curve of an individual decision maker is a plot of the decision maker's utilities versus the profits.

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.

A pharmaceutical company manufacturing pregnancy test kits wants to determine the probability of a woman actually being pregnant when the test results indicate that she is not pregnant.It is estimated that the probability of pregnancy among potential users of the kit is 10 percent.According to the company laboratory test results,1 out of 100 nonpregnant women tested pregnant (false positive).On the other hand,1 out of 200 pregnant women tested nonpregnant (false negative).A woman has just used the pregnancy test kit manufactured by the company,and the results showed that she is not pregnant.What is the probability that she is pregnant?

When we use the expected monetary value criterion,the expected payoff equals the actual payoff that will be realized.

The _____________________ is the difference between the expected value of sampling and the cost of sampling.

The _____________ criterion is best used when a large number of similar decisions will be made.

The maximax criterion is preferred by pessimistic decision makers.

The expected monetary value criterion is best used when a large number of similar decisions will be made.

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

A pharmaceutical company manufacturing pregnancy test kits wants to determine the probability of a woman not being pregnant when the test results indicate pregnancy.It is estimated that the probability of pregnancy among potential users of the kit is 10 percent.According to the company laboratory test results,1 out of 100 nonpregnant women tested pregnant (false positive).On the other hand,1 out of 200 pregnant women tested nonpregnant (false negative).A woman has just used the pregnancy test kit manufactured by the company and the results showed pregnancy.What is the probability that she is not pregnant?

The 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.Prior probabilities are .3 for s₁;.6 for s₂,and .1 for s₃.

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.

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 maximin criterion is strategy _____ and the best possible payoff is __________.

The _____________________ criterion is attractive to those decision makers who exhibit a neutral approach toward decision choices involving risk.

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.

When making a decision in an environment of ________________,the likelihood of each state of nature can be estimated.

Maximax is a criterion used when making decisions under __________________.