Exam 22: Decision Analysis

A payoff table lists the monetary values for each possible combination of the

Removal of uncertainty from a decision-making problem leads to a case referred to as perfect information.

Gas Company A payoff table for an electric company is shown below: The following prior probabilities are assigned to the states of nature: P(s₁)= 0.3,P(s₂)= 0.7. ​ ​ -{Gas Company Narrative} Convert the payoff table to an opportunity loss table.

We compute the ____________________ by multiplying the probability of each state of nature by the largest payoff associated with that state of nature,then summing the resulting products.

Demolition Company The payoff table and the prior probabilities for three states of nature for a demolition company are shown below: Prior Probabilities: P(s₁)= 0.4,P(s₂)= 0.5,and P(s₃)= 0.1. ​ ​ -{Demolition Company Narrative} Set up the opportunity loss table.

What is meant by a payoff table?

Food Market The following table displays the payoffs (in thousands of dollars)for five different decision alternatives under three possible states of nature for a new food market: The prior probabilities of the states of nature are: P(s₁)= 0.2,P(s₂)= 0.3,and P(s₃)= 0.5. ​ ​ -{Food Market Narrative} Convert the payoff table to an opportunity loss table.

Which probability is also known as the revised probability?

Dishwasher Designs Three different designs are being considered for a new dishwasher,and profits will depend on the combination of the dishwasher design and market condition.The following payoff table summarizes the decision situation,with amounts in millions of dollars. Assume that the following probabilities are assigned to the three market conditions: P(s₁)= 0.1,P(s₂)= 0.6,and P(s₃)= 0.3. ​ ​ -{Dishwasher Designs Narrative} Calculate the expected opportunity loss for each design with present information.Which design should be selected in order to minimize the firm's expected loss?

Lingerie Store The following table displays the payoffs (in thousands of dollars)for five different decision alternatives under three possible states of nature for a new Lingerie store: The prior probabilities of the states of nature are: P(s₁)= 0.2,P(s₂)= 0.3,and P(s₃)= 0.5. ​ ​ -{Lingerie Store Narrative} Calculate the expected payoff with perfect information.

The procedure for revising probabilities based upon additional information is referred to as:

Car Audio Store For a car audio store,a payoff table,the prior probabilities for two states of nature,and the likelihood probabilities are shown below: Payoff Table: ​ ​ -{Car Audio Store Narrative} Use the prior and likelihood probabilities to calculate the posterior probabilities for the experimental outcome I₂.

Maintenance Company For a maintenance company,a payoff table,the prior probabilities for three states of nature,and the likelihood probabilities are shown below: Payoff Table: Prior Probabilities: P(s₁)= 0.4,P(s₂)= 0.5,and P(s₃)= 0.1. Likelihood Probabilities: ​ ​ -{Maintenance Company Narrative} Calculate the expected value of sample information.

The rollback technique starts at the beginning (left side)of the decision tree.

What is meant by the expected payoff with perfect information (EPPI)?

A(n)____________________ tree is helpful in describing the acts and states of nature,and for making calculations involving these items easier.

The expected monetary value (EMV)of a decision alternative is the sum of the products of the payoffs and the state of nature probabilities.

Which of the following statements is correct?

The expected value of perfect information is the same as the:

Car Audio Store For a car audio store,a payoff table,the prior probabilities for two states of nature,and the likelihood probabilities are shown below: Payoff Table: ​ ​ -{Car Audio Store Narrative} Use the posterior probabilities for I₂ in the previous questions to recalculate the expected monetary value of each act,then determine the optimal act and the EMV^*.