Question 1

The more complex the decision the less useful decision analysis is.

Accepted Answer

A) True 
 B)False

Question 2

Explain the difference between a good decision and a good outcome in an environment of uncertainty.

Accepted Answer

When a good decision is made in an envir

Question 3

For each decision alternative there is only one payoff possible.

Accepted Answer

A) True 
 B)False

Question 4

Given the following payoff table and probabilities for each state of nature,answer the questions below.   Probabilities: P(S1)= .2 P(S2)= .5 P(S3)= .3
Find the expected value of perfect information.

Accepted Answer

First we need to find the expected value

Question 5

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.   Suppose that Julie estimates the following probabilities for each level of restaurant popularity.   The expected value of perfect information is 70.

Accepted Answer

A) True 
 B)False

Question 6

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 many donuts (A3)and demand being Moderate (S2)is 200.

Accepted Answer

A) True 
 B)False

Question 7

In folding back a decision tree,one works from left to right.

Accepted Answer

A) True 
 B)False

Question 8

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 maximax criterion,which investment should be chosen?

Accepted Answer

A) Stock A 
B) Stock B 
C) Stock C 
D) Money market 
A) Stock A 
B) Stock B 
C) Stock C 
D) Money market

Question 9

Assume that you need to choose between two alternatives and know that the expected value for A1 is 400,as shown in the decision tree below.   You want to determine how sensitive the choice between the two alternatives is to the probability of S1 occurring.In conducting sensitivity analysis on the probability of S1,the probability value that you would find is p = 0.5.

Accepted Answer

A) True 
 B)False

Question 10

Expected value refers to the average outcome (payoff)that the decision maker would expect to receive over the long run if the decision is repeated many times.

Accepted Answer

A) True 
 B)False

Question 11

A payoff table shows the payoff for each combination of alternative and state of nature.

Accepted Answer

A) True 
 B)False

Question 12

Decision trees are helpful in visually structuring the problem and seeing all the possible sequences of events.

Accepted Answer

A) True 
 B)False

Question 13

In a decision tree the sum of all probabilities in the tree must be equal to 1.0.

Accepted Answer

A) True 
 B)False

Question 14

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.
After drawing the tree and folding back,the expected value of replacing the mower (by trading in)is a cost of $425.

Accepted Answer

A) True 
 B)False

Question 15

The two primary decision environments are certainty and uncertainty.

Accepted Answer

A) True 
 B)False

Question 16

The maximin criterion is an optimistic decision criterion.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is true?

Accepted Answer

A) The expected value under certainty is equal to the expected cost of uncertainty minus the expected value under uncertainty. 
B) The expected value under uncertainty is equal to the expected cost of uncertainty minus the expected value under certainty. 
C) The expected cost of uncertainty is equal to the expected value under uncertainty minus the expected value under certainty. 
D) The expected cost of uncertainty is equal to the expected value under certainty minus the expected value under uncertainty. 
A) The expected value under certainty is equal to the expected cost of uncertainty minus the expected value under uncertainty. 
B) The expected value under uncertainty is equal to the expected cost of uncertainty minus the expected value under certainty. 
C) The expected cost of uncertainty is equal to the expected value under uncertainty minus the expected value under certainty. 
D) The expected cost of uncertainty is equal to the expected value under certainty minus the expected value under uncertainty.

Question 18

When the outcome of a decision is bad this does not necessarily mean that the decision was bad.

Accepted Answer

A) True 
 B)False

Question 19

Payoff refers to the net profit or loss resulting from a combination of alternative and state of nature.

Accepted Answer

A) True 
 B)False

Question 20

Payoff and state of nature are two different terms for the same thing.

Accepted Answer

A) True 
 B)False

The more complex the decision the less useful decision analysis is.

Explain the difference between a good decision and a good outcome in an environment of uncertainty.

For each decision alternative there is only one payoff possible.

Given the following payoff table and probabilities for each state of nature,answer the questions below. Probabilities: P(S₁)= .2 P(S₂)= .5 P(S₃)= .3 Find the expected value of perfect information.

In folding back a decision tree,one works from left to right.

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 maximax criterion,which investment should be chosen?

Expected value refers to the average outcome (payoff)that the decision maker would expect to receive over the long run if the decision is repeated many times.

A payoff table shows the payoff for each combination of alternative and state of nature.

Decision trees are helpful in visually structuring the problem and seeing all the possible sequences of events.

In a decision tree the sum of all probabilities in the tree must be equal to 1.0.

The two primary decision environments are certainty and uncertainty.

The maximin criterion is an optimistic decision criterion.

Which of the following is true?

When the outcome of a decision is bad this does not necessarily mean that the decision was bad.

Payoff refers to the net profit or loss resulting from a combination of alternative and state of nature.

Payoff and state of nature are two different terms for the same thing.

The Where, why, and How of Data Collection

Graphs,charts and Tablesdescribing Your Data

Describing Data Using Numerical Measures

Using Probability and Probability Distributions

Discrete Probability Distributions

Introduction to Continuous Probability Distributions

Introduction to Sampling Distributions

Estimating Single Population Parameters

Introduction to Hypothesis Testing

Estimation and Hypothesis Testing for Two Population Parameters

Hypothesis Tests and Estimation for Population Variances

Analysis of Variance

Goodness-Of-Fit Tests and Contingency Analysis

Introduction to Linear Regression and Correlation Analysis

Multiple Regression Analysis and Model Building

Analyzing and Forecasting Time-Series Data

Introduction to Nonparametric Statistics

Introduction to Quality and Statistical Process Control

Filters

Exam 19: Introduction to Decision Analysis

The more complex the decision the less useful decision analysis is.

Explain the difference between a good decision and a good outcome in an environment of uncertainty.

For each decision alternative there is only one payoff possible.

Given the following payoff table and probabilities for each state of nature,answer the questions below. Probabilities: P(S1)= .2 P(S2)= .5 P(S3)= .3 Find the expected value of perfect information.

In folding back a decision tree,one works from left to right.

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 maximax criterion,which investment should be chosen?

Expected value refers to the average outcome (payoff)that the decision maker would expect to receive over the long run if the decision is repeated many times.

A payoff table shows the payoff for each combination of alternative and state of nature.

Decision trees are helpful in visually structuring the problem and seeing all the possible sequences of events.

In a decision tree the sum of all probabilities in the tree must be equal to 1.0.

The two primary decision environments are certainty and uncertainty.

The maximin criterion is an optimistic decision criterion.

Which of the following is true?

When the outcome of a decision is bad this does not necessarily mean that the decision was bad.

Payoff refers to the net profit or loss resulting from a combination of alternative and state of nature.

Payoff and state of nature are two different terms for the same thing.

The Where, why, and How of Data Collection

Graphs,charts and Tablesdescribing Your Data

Describing Data Using Numerical Measures

Using Probability and Probability Distributions

Discrete Probability Distributions

Introduction to Continuous Probability Distributions

Introduction to Sampling Distributions

Estimating Single Population Parameters

Introduction to Hypothesis Testing

Estimation and Hypothesis Testing for Two Population Parameters

Hypothesis Tests and Estimation for Population Variances

Analysis of Variance

Goodness-Of-Fit Tests and Contingency Analysis

Introduction to Linear Regression and Correlation Analysis

Multiple Regression Analysis and Model Building

Analyzing and Forecasting Time-Series Data

Introduction to Nonparametric Statistics

Introduction to Quality and Statistical Process Control

Filters

Given the following payoff table and probabilities for each state of nature,answer the questions below. Probabilities: P(S₁)= .2 P(S₂)= .5 P(S₃)= .3 Find the expected value of perfect information.