Question 1

The maximin criterion finds the best possible payoff for each alternative and then chooses the alternative that yields the maximum payoff.

Accepted Answer

A) True 
 B)False

Question 2

A __________ is a diagram that assists the decision maker in analyzing a decision problem.

Accepted Answer

The answer of A __________ is a diagram that assists...

Question 3

Maximin is a criterion used when making decisions under certainty.

Accepted Answer

A) True 
 B)False

Question 4

The expected _________ criterion tells the decision maker to choose the alternative with the highest expected payoff.

Accepted Answer

The answer of The expected _________ criterion tells the decision...

Question 5

The utility curve given below represents the preferences of a _________________ decision maker.

Accepted Answer

A) risk averse 
B) risk neutral 
C) risk seeking 
A) risk averse 
B) risk neutral 
C) risk seeking

Question 6

Expected value of _________ is defined as the expected payoff under certainty subtracted by the expected payoff under risk.

Accepted Answer

The answer of Expected value of _________ is defined as...

Question 7

The maximax criterion finds the best possible payoff for each alternative,and then chooses the alternative that yields the maximum (best)possible payoff.

Accepted Answer

A) True 
 B)False

Question 8

An investor is looking at three possible investments: growth stock,blue chip stock,or municipal bonds.The investment performance will vary depending on the investment market condition of Bull (market rising),flat,or Bear (market falling).The investment return for each investment for the corresponding market conditions is given below: $$\begin{array} { | l | l | l | l | } 
\hline & \text { Bull } & \text { Flat } & \text { Bear } \
\hline \text { Growth Stock } & 20 & 1 & - 6 \
\hline \text { Blue Chip } & 9 & 8 & 0 \
\hline \text { Bonds } & 4 & 4 & 4 \
\hline
\end{array}$$
Which investment would the investor select if the maximax criterion is used?

Accepted Answer

A) Growth Stock 
B) Blue Chip 
C) Bonds 
A) Growth Stock 
B) Blue Chip 
C) Bonds

Question 9

When the maximin criterion is used,the decision-maker assumes that for any alternative action,the state of nature with the maximum payoff will take place.

Accepted Answer

A) True 
 B)False

Question 10

An investor has the following utilities corresponding to various possible returns on an investment:
$\begin{array}{|c|l|}
\hline \text { Profit } &{\text { Utility }} \
\hline \$ 100,000 & 1 \
\hline \$ 75,000 & 0.9 \
\hline \$ 40,000 & 0.6 \
\hline \$  0 & 0.25 \
\hline-\$  5,000 & 0.10 \
\hline-\$  10,000 & 0 \
\hline
\end{array}$
-The investor is considering an investment with the following potential returns and the probability of these returns. $$\begin{array} { | c | l | } 
\hline  { \text { Profit } } & \text { Probability } \
\hline \$ 100,000 & 0.1 \
\hline \$ 40,000 & 0.5 \
\hline - \$ 10,000 & 0.4 \
\hline
\end{array}$$
What is the investor's expected utility for this investment?

Accepted Answer

A) $26,000 
B) $40,000 
C) 0.33 
D) 0.4 
E) Cannot be determined. 
A) $26,000 
B) $40,000 
C) 0.33 
D) 0.4 
E) Cannot be determined.

Question 11

The utility curve given below represents the preferences of a _________________ decision maker.

Accepted Answer

A) risk averse 
B) risk neutral 
C) risk seeking 
A) risk averse 
B) risk neutral 
C) risk seeking

Question 12

A decision-maker's expected _____________ is based upon his/her attitude towards risk.

Accepted Answer

The answer of A decision-maker's expected _____________ is based upon...

Question 13

The quality control manager for the NKA Inc.must decide whether to accept (alternative 1),further analyze (alternative 2),or reject (alternative 3)the shipment (lot)of incoming material.The historical data indicates that there is 30% chance that the lot is poor quality (SS1U1B11S1U1B0),50% chance that the lot is fair quality (SS1U1B12S1U1B0),and 20% chance that the lot is good quality (SS1U1B13S1U1B0).Assume the following payoff table is available.The values in the payoff table are in thousands of dollars. $$\begin{array} { l c c c } 
& { \text { States of Nature } } \
\text { Decision } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } & \mathrm {~S} _ { 3 } \
\text { Accept } & 20 & 30 & 90 \
\text { Further analyze } & 60 & 70 & 15 \
\text { Reject } & 80 & 50 & 30
\end{array}$$ Based on historical data,if the lot is of poor quality,40% of the items are defective.If the lot is fair quality,22% of the items are defective.If the lot is good quality,10 % of the items are defective.The quality control manager inspects one unit from a recent shipment.
-After inspecting one unit,the manager determines that the unit is defective.If the inspected item is defective,determine which alternative action the quality control manager should choose.

Accepted Answer

(EMV)₃ = 62.8,reject the shipment. Let: D

Question 14

A tire manufacturer needs to make a decision about the amount of production for the coming month (high vs.low).The level of production largely depends on the level of demand.For this situation,the amount of production constitutes the ___________________ actions.

Accepted Answer

The answer of A tire manufacturer needs to make a...

Question 15

The quality control manager for the NKA Inc.must decide whether to accept (alternative 1),further analyze (alternative 2),or reject (alternative 3)the shipment (lot)of incoming material.The historical data indicates that there is 30% chance that the lot is poor quality (S1),50% chance that the lot is fair quality (S2),and 20% chance that the lot is good quality (S3).Assume the following payoff table is available.The values in the payoff table are in thousands of dollars. $$\begin{array} { l c c c } 
& { \text { States of Nature } } \
\text { Decision } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } & \mathrm {~S} _ { 3 } \
\text { Accept } & 20 & 30 & 90 \
\text { Further analyze } & 60 & 70 & 15 \
\text { Reject } & 80 & 50 & 30
\end{array}$$
Based on historical data,if the lot is of poor quality,40% of the items are defective.If the lot is fair quality,22% of the items are defective.If the lot is good quality,10 % of the items are defective.The quality control manager inspects one unit from a recent shipment.After inspecting one unit,the manager determines that the unit is defective.Based on this additional information,what is the revised (posterior)probability for the reject state?

Accepted Answer

A) 44 
B) 52 
C) 18 
D) 08 
E) 48 
A) 44 
B) 52 
C) 18 
D) 08 
E) 48

Question 16

The quality control manager for the NKA Inc.must decide whether to accept (alternative 1),further analyze (alternative 2),or reject (alternative 3)the shipment (lot)of incoming material.The historical data indicates that there is 30% chance that the lot is poor quality (SS1U1B11S1U1B0),50% chance that the lot is fair quality (SS1U1B12S1U1B0),and 20% chance that the lot is good quality (SS1U1B13S1U1B0).Assume the following payoff table is available.The values in the payoff table are in thousands of dollars. $$\begin{array} { l c c c } 
& { \text { States of Nature } } \
\text { Decision } & \mathrm { S } _ { 1 } & \mathrm {~S} _ { 2 } & \mathrm {~S} _ { 3 } \
\text { Accept } & 20 & 30 & 90 \
\text { Further analyze } & 60 & 70 & 15 \
\text { Reject } & 80 & 50 & 30
\end{array}$$
-What alternative action should be selected according to maximin criterion?

Accepted Answer

Choose alternative 3,and rejec

Question 17

A set of potential future conditions that will have an effect on the results of a decision is called the states of nature.

Accepted Answer

A) True 
 B)False

The maximin criterion finds the best possible payoff for each alternative and then chooses the alternative that yields the maximum payoff.

A __________ is a diagram that assists the decision maker in analyzing a decision problem.

Maximin is a criterion used when making decisions under certainty.

The expected _________ criterion tells the decision maker to choose the alternative with the highest expected payoff.

The utility curve given below represents the preferences of a _________________ decision maker.

Expected value of _________ is defined as the expected payoff under certainty subtracted by the expected payoff under risk.

The maximax criterion finds the best possible payoff for each alternative,and then chooses the alternative that yields the maximum (best)possible payoff.

When the maximin criterion is used,the decision-maker assumes that for any alternative action,the state of nature with the maximum payoff will take place.

The utility curve given below represents the preferences of a _________________ decision maker.

A decision-maker's expected _____________ is based upon his/her attitude towards risk.

A tire manufacturer needs to make a decision about the amount of production for the coming month (high vs.low).The level of production largely depends on the level of demand.For this situation,the amount of production constitutes the ___________________ actions.

A set of potential future conditions that will have an effect on the results of a decision is called the states of nature.

An Introduction to Business Statistics

Descriptive Statistics

Probability

Discrete Random Variables

Continuous Random Variables

Sampling Distributions

Confidence Intervals

Hypothesis Testing

Statistical Inferences Based on Two Samples

Experimental Design and Analysis of Variance

Correlation Coefficient and Simple Linear Regression Analysis

Multiple Regression and Model Building

Nonparametric Methods

Chi-Square Tests

Time Series Forecasting

Filters

Exam 15: Decision Theory

The maximin criterion finds the best possible payoff for each alternative and then chooses the alternative that yields the maximum payoff.

A __________ is a diagram that assists the decision maker in analyzing a decision problem.

Maximin is a criterion used when making decisions under certainty.

The expected _________ criterion tells the decision maker to choose the alternative with the highest expected payoff.

The utility curve given below represents the preferences of a _________________ decision maker.

Expected value of _________ is defined as the expected payoff under certainty subtracted by the expected payoff under risk.

The maximax criterion finds the best possible payoff for each alternative,and then chooses the alternative that yields the maximum (best)possible payoff.

When the maximin criterion is used,the decision-maker assumes that for any alternative action,the state of nature with the maximum payoff will take place.

The utility curve given below represents the preferences of a _________________ decision maker.

A decision-maker's expected _____________ is based upon his/her attitude towards risk.

A tire manufacturer needs to make a decision about the amount of production for the coming month (high vs.low).The level of production largely depends on the level of demand.For this situation,the amount of production constitutes the ___________________ actions.

A set of potential future conditions that will have an effect on the results of a decision is called the states of nature.

An Introduction to Business Statistics

Descriptive Statistics

Probability

Discrete Random Variables

Continuous Random Variables

Sampling Distributions

Confidence Intervals

Hypothesis Testing

Statistical Inferences Based on Two Samples

Experimental Design and Analysis of Variance

Correlation Coefficient and Simple Linear Regression Analysis

Multiple Regression and Model Building

Nonparametric Methods

Chi-Square Tests

Time Series Forecasting

Filters