Exam 19: Decision Analysis

Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather. His investment advisor has identified four alternatives and constructed the following table which shows expected profits (in $10,000's)for various market conditions and their probabilities.

A particular electronic component is produced at two plants for an electronics manufacturer.Plant A produces 70% of the components used and the remainder are produced by plant B.The probability that a component is defective is 0.02 if it is produced at plant A and 0.01 if it is produced at plant B. If the component is defective the revised probability it is produced at plant B,P (B|D),is ________

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather. His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. If Ray uses the maximax criterion,the appropriate choice would be ________.

Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather. His investment advisor has identified two alternatives and constructed the following tables which show (1)expected profits (in $10,000's)for various market conditions and their probabilities,and (2)the advisor's track record on predicting Bull and Bear markets. The probability that the advisor predicts a Bull market and the Bull market is the actual condition p(F₁ᴖS₁₎ is ________.

Ray Crofford is evaluating investment alternatives for the $100,000 which he inherited from his grandfather. His investment advisor has identified two alternatives and constructed the following tables which show (1)expected profits (in $10,000's)for various market conditions and their probabilities,and (2)the advisor's track record on predicting Bull and Bear markets. If the advisor predicts a Bear market the revised probability of a Bear market,P (S₂|F₂),is ________.

Frank Forgione has the right to enter a contest where he has a 50% chance of winning $50,000 and a 50% chance of losing $0. It costs Frank nothing to enter the contest.If he is willing to give up his right to enter the contest for a sure payment of $10,000,he is ___.

Frank Forgione has the right to enter a contest where he has a 50% chance of winning $50,000 and a 50% chance of losing $0. It costs Frank nothing to enter the contest.If he is willing to give up his right to enter the contest for a sure payment of $25,000,he is ___.

In a decision-making under uncertainty scenario,the best decision alternative based on the strategy of minmax regret will always have zero regret.

You are evaluating investment alternatives for a ski resort.There are four alternative investments and their payoffs (in $10,000s)are shown in the following table,depending on the snow conditions for the next season. If you use the EMV criterion,and the probability that the snow conditions are good is p,what is the expected monetary payoff with perfect information?

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather. His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. For the 'Stocks' and 'Bonds' choices,the indifference value of Hurwicz's alpha is ____.

In a decision analysis problem,variables (such as investing in common stocks or corporate bonds)which are under the decision maker's control are called _________.

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather. His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. If Ray uses the Hurwicz criterion with alpha = 0.5,the appropriate choice is ______.

In a decision-making scenario,if it is not known which of the states of nature will occur but the probabilities of occurrence of the states are known the scenario is called decision-making under risk.

Consider the following decision table with rewards in $ millions. Using the Hurwicz criterion with alpha = 0.1,the appropriate choice would be ________.

You are evaluating investment alternatives for a ski resort.There are four alternative investments and their payoffs (in $10,000s)are shown in the following table,depending on the snow conditions for the next season. If you use the EMV criterion,what is the minimum probability that the conditions will be good for you to decide investment d₄?

The expected monetary value without information is $2,500,and the expected monetary payoff with perfect information is $5,000. The expected value of perfect information is ____________.

A risk-avoider decision maker will bail out of risky scenario only if the compensation to bail out is more than the expected monetary payoff from the risky scenario.

Dan Hein owns the mineral and drilling rights to a 1,000 acre tract of land. If he drills a well and does not strike oil his net loss will be $50,000,but if he drills a well and strikes oil his net gain will be $100,000.If he does not drill,his loss is the cost of the mineral and drilling rights,which amount to $1000.The probability of the state of nature "oil in the tract" is unknown.If Dan is an optimist,he would choose the _____________.

In a decision-making under risk scenario,the expected monetary value of a decision alternative is the weighted average (using the probability of each state of nature as the weight)of the payoffs to the decision alternative in each state of the nature.

Ray Crofford is evaluating investment alternatives to invest $100,000 which he inherited from his grandfather. His investment advisor has identified four alternatives and constructed the following payoff table which shows expected profits (in $10,000's)for various market conditions. For the 'T-Bills' and 'Bonds' choices,the indifference value of Hurwicz's alpha is _____.