Exam 19: Introduction to Decision Analysis

A bakery makes fresh donuts every morning.If any are left at the end of the day they are donated to a homeless shelter.The number of donuts that can be sold each day is uncertain and the bakery must decide early each morning,how many donuts to make that day.The bakery has created the following payoff table to summarize the situation. The opportunity loss for making a medium number of donuts (A₂)and demand being low (S₃)is 120.

In a decision tree,at a point where the decision maker does not have control over the outcome,what is the maximum number of branches possible?

In what type of situation is decision analysis most useful?

Assume that you have a riding lawn mower that is in need of repairs.You can choose to repair or replace it.You are interested in your net cost over the next two years.If you choose to repair,it will cost $300 and there is a 50/50 chance of whether or not it will need additional repairs within the next two years.If it does need additional repairs,there is a 40 percent chance of needing another $400 of repairs,and a 60 percent chance of needing another $200 of repairs.At the end of the two years you estimate that the repaired mower would be worthless. If you choose to replace the mower by trading in the old mower,the cost after deducting the trade in value is $1500.At the end of the two years you estimate there is a 75 percent chance you could resell it for $1000,and a 25 percent chance that you can resell it for $1300. What is the expected value of repairing the mower?

Julie is planning to open a restaurant and is considering two possible locations.She has estimated the payoff for each location for each of three different possible levels of restaurant popularity (state of nature)as shown below. The opportunity loss for Location 2 and Poor restaurant popularity is 800.

An investor has $1000 to invest and is considering the four alternatives shown below.How well each investment does depends on the state of the economy.The payoff table is shown below. Based on the maximin criterion,which investment should be chosen?

A bakery makes fresh donuts every morning.If any are left at the end of the day they are donated to a homeless shelter.The number of donuts that can be sold each day is uncertain and the bakery must decide early each morning,how many donuts to make that day.The bakery has created the following payoff table to summarize the situation. It estimates the following probabilities for the respective levels of demand. What is the expected value of perfect information for the bakery?

The goal of decision analysis is to focus on obtaining good outcomes.

The maximax criterion is a nonprobabilistic decision criterion.

Opportunity loss values are used by the maximax criterion.

Julie is planning to open a restaurant and is considering two possible locations.She has estimated the payoff for each location for each of three different possible levels of restaurant popularity (state of nature)as shown below. Using the maximax criterion she should choose location 2.

A bakery makes fresh donuts every morning.If any are left at the end of the day they are donated to a homeless shelter.The number of donuts that can be sold each day is uncertain and the bakery must decide early each morning,how many donuts to make that day.The bakery has created the following payoff table to summarize the situation. It estimates the following probabilities for the respective levels of demand. The expected value of A₂ (making a medium number of donuts)is 186.

The expected value criterion is a probabilistic decision criterion because it involves probability values for each possible outcome.

Folding back a decision tree involves:

Decision analysis refers to a set of tools that can be helpful in analyzing business decisions.

Sensitivity analysis for a decision tree involves analyzing how sensitive decisions are to the probability values used.

The goal of decision analysis is to:

The possible outcomes of a decision,over which the decision maker has no control,are referred to as states of nature.

Julie is planning to open a restaurant and is considering two possible locations.She has estimated the payoff for each location for each of three different possible levels of restaurant popularity (state of nature)as shown below. Using the minimax regret criterion,she should choose location 1.

When is decision analysis most useful?