Exam 9: Decision Analysis

Figure There is an option of paying $100 to have research done to better predict which state of nature will occur.When the true state of nature is S1,the research will accurately predict S1 60% of the time.When the true state of nature is S2,the research will accurately predict S2 80% of the time. -What is the unconditional probability that the research predicts S2?

Figure The operations manager for a local bus company wants to decide whether he should purchase a small,medium,or large new bus for his company.He estimates that the annual profits (in $000)will vary depending upon whether passenger demand is low,moderate,or high,as follows. -If he uses the maximum likelihood criterion,which size bus will he decide to purchase?

Figure -The Bayes' decision rule strategy is:

In decision analysis,states of nature refer to possible future conditions.

The maximin criterion is an optimistic criterion.

Bayes' theorem is a formula for determining prior probabilities of a state of nature.

Payoff tables may include only non-negative numbers.

What is the expected payoff for the optimum decision alternative?

Figure There is an option of paying $100 to have research done to better predict which state of nature will occur.When the true state of nature is S1,the research will accurately predict S1 60% of the time.When the true state of nature is S2,the research will accurately predict S2 80% of the time. -What is the unconditional probability that the research predicts S1?

Using Bayes' decision rule will always lead to larger payoffs.

Figure There is an option of paying $100 to have research done to better predict which state of nature will occur.When the true state of nature is S1,the research will accurately predict S1 60% of the time.When the true state of nature is S2,the research will accurately predict S2 80% of the time. -Given that the research is done,what is the expected payoff using Bayes' decision rule?

Most people occupy a middle ground and are classified as risk neutral.

The exponential utility function assumes a constant aversion to risk.

A utility function for money can be constructed by applying a lottery procedure.

Figure -The maximin strategy is:

A event node in a decision tree indicates that a decision needs to be made at that point.

Testing how a problem solution reacts to changes in one or more of the model parameters is called: