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 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 Bull market the EMV of the Bonds alternative,using revised probabilities,is ________.

Consider the following decision table with rewards in $ millions. The opportunity loss for the combination "S₂" and "d₁" 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. The probability that the advisor predicts a Bull market,P (F₁),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 EMV of the Bonds alternative,using revised probabilities,is ________.

Melissa Rossi,Product Manager at National Consumers,Inc.(NCI),is evaluating alternatives for introducing a new package for toothpaste. She has identified four alternative markets,and has constructed the following table which shows NCI's rewards (in $1,000,000's)for various levels of acceptance by the markets and their probabilities. The EMV of introducing the new package in the "National" market is ________.

Consider the following decision table with rewards in $ millions. Using the maximin criterion,the appropriate choice would be __________.

A random person is selected from a large population in which 5% are users of a dangerous illegal drug.A drug test that correctly identifies users 99% of the times and nonusers 95% of the time (this percentage is called "specificity" of the test)is administered to this individual and gives a positive result.What specificity would actually be required to conclude that the probability that this individual is actually a user of this drug is 0.75?

Consider the following decision table with rewards in $ millions. The opportunity loss for the combination "S₃" and "d₁" is ________.

Melissa Rossi,Product Manager at National Consumers,Inc.(NCI),is evaluating alternatives for introducing a new package for toothpaste. She has identified four alternative markets,and has constructed the following table which shows NCI's rewards (in $1,000,000's)for various levels of acceptance by the markets and their probabilities. The expected value of perfect information is ________.

Melissa Rossi,Product Manager at National Consumers,Inc.(NCI),is evaluating alternatives for introducing a new package for toothpaste. She has identified four alternative markets,and has constructed the following table which shows NCI's rewards (in $1,000,000's)for various levels of acceptance by the markets and their probabilities. The EMV of introducing the new package in the "Northeast Only" market 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 decision alternatives.

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,the probability that the snow conditions are good is p,and you decide investment d₃,what is the expected value of perfect information?

The concept of utility can be helpful to apply decision analysis techniques to situations which do not lend themselves to expected monetary value analysis.

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.For Dan's decision problem,the variable "drill the well" is one of the ___________.

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. The expected value of perfect information 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 maximin criterion,the appropriate choice would be ________.

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 combination of 'Bear' and 'Mixture',the opportunity loss is ______.

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 you decide investment d₂,then the probability that the snow conditions are good 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 Bull market the EMV of the Stocks alternative,using revised probabilities,is ________.

Melissa Rossi,Product Manager at National Consumers,Inc.(NCI),is evaluating alternatives for introducing a new package for toothpaste. She has identified four alternative markets,and has constructed the following table which shows NCI's rewards (in $1,000,000's)for various levels of acceptance by the markets and their probabilities. The expected monetary payoff with perfect information is ________.