Exam 19: Introduction to Decision Analysis

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.Conduct sensitivity analysis on the probability of S₁.What is the value for p that you find?

When using the minimax regret criterion,after finding the opportunity loss table,the next step is to choose the minimum regret for each alternative.

Discuss the advantages and disadvantages of the expected value criterion.

Assume that a decision maker is facing a decision under uncertainty and has calculated the expected value of perfect information is 75.If the decision maker could obtain perfect information at a cost of 85,then he/she should purchase the perfect information.

The maximax criterion,maximin criterion,minimax regret criterion,and expected value criterion are all nonprobabilistic decision criteria.

A decision tree can show only one decision and outcome combination.

In order to choose among two or more alternatives it is important to establish the decision criteria that will be used to evaluate each alternative.

Which of the following is true about opportunity loss?

In conducting sensitivity analysis in a decision tree,the probability that is solved for is the value that would make one alternative much more preferable than the other alternative.

The "expected cost of uncertainty" and the "expected value of perfect information" are the same thing.

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 maximin 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. What is the expected value of making a medium number of donuts (A₂)?

A payoff table and a decision tree both show the alternatives,states of nature,and payoffs,but the decision tree also shows the order of events.

Which of the following is NOT true about the expected value of perfect information?

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 payoff or value under uncertainty is 190.

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. If the investor chose the money market and the economy went into recession,what is the value of the opportunity loss?