Question 1

The maximax criterion finds the worst possible payoff for each alternative and then chooses the alternative that yields the maximum of those worst possible payoffs.

Accepted Answer

A) True 
 B)False  False

Question 2

Decision makers in business organizations make most decisions in environments that involve some degree of ___________________.

Accepted Answer

A)  risk 
B)  utility 
C)  certainty 
D)  uncertainty 
A)  risk 
B)  utility 
C)  certainty 
D)  uncertainty D

Question 3

In utility theory,a(n)__________________ decision maker is an individual who will choose the decision alternative having the highest expected profit.

Accepted Answer

A)  high-risk 
B)  low-risk 
C)  risk-neutral 
D)  posterior 
A)  high-risk 
B)  low-risk 
C)  risk-neutral 
D)  posterior C

Question 4

The quality control manager for NKA Inc.must decide whether to accept (alternative 1),further analyze (alternative 2),or reject (alternative 3)an incoming shipment (lot)of microchips.The historical data indicate that there is a 30 percent chance that the lot is poor quality (S1),50 percent chance that the lot is fair quality (S2),and 20 percent 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.   Based on historical data,if the lot is poor quality,40 percent of the items are defective.If the lot is fair quality,22 percent of the items are defective.If the lot is good quality,10 percent of the items are defective.The quality control manager inspects one unit from a recent shipment.After inspecting it,he determines that the unit is not defective.Based on this additional information,determine the revised (posterior)probabilities for each of the three states of nature.

Accepted Answer

.24,.52,.24
Let:
D =

Question 5

The quality control manager for NKA Inc.must decide whether to accept (alternative 1),further analyze (alternative 2),or reject (alternative 3)an incoming shipment (lot)of microchips.The historical data indicate that there is a 30 percent chance that the lot is poor quality (S1),50 percent chance that the lot is fair quality (S2),and 20 percent 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.   What alternative action should be selected according to the expected monetary value criterion?

Accepted Answer

Choose alternative 2,and furth

Question 6

When making a decision in an environment of ________________,the likelihood of each state of nature can be estimated.

Accepted Answer

A)  certainty 
B)  uncertainty 
C)  risk 
D)  alternatives 
A)  certainty 
B)  uncertainty 
C)  risk 
D)  alternatives

Question 7

The ____________________criterion for choosing among alternative actions assumes that the state of nature with the best payoff will be experienced.

Accepted Answer

A)  maximin 
B)  certainty 
C)  maximax 
D)  decision 
A)  maximin 
B)  certainty 
C)  maximax 
D)  decision

Question 8

The maximin criterion is preferred by optimistic decision makers.

Accepted Answer

A) True 
 B)False

Question 9

The expected net gain of sampling equals the ____________________ minus the cost of sampling.

Accepted Answer

A)  expected monetary value 
B)  expected value of perfect information 
C)  expected value of sampling information 
D)  expected net gain of sampling 
A)  expected monetary value 
B)  expected value of perfect information 
C)  expected value of sampling information 
D)  expected net gain of sampling

Question 10

__________________ statistics is an area of statistics that uses a theorem to update prior belief about a probability or population parameter to a posterior belief.

Accepted Answer

A)  Bayesian 
B)  Utility theory 
C)  Preposterior analysis 
D)  Risk theory 
A)  Bayesian 
B)  Utility theory 
C)  Preposterior analysis 
D)  Risk theory

Question 11

Maximax is a criterion used when making decisions under uncertainty.

Accepted Answer

A) True 
 B)False

Question 12

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 13

The expected value criterion is used for decision making under __________________.

Accepted Answer

A)  certainty 
B)  uncertainty 
C)  risk 
D)  alternatives 
A)  certainty 
B)  uncertainty 
C)  risk 
D)  alternatives

Question 14

The maximax criterion is preferred by pessimistic decision makers.

Accepted Answer

A) True 
 B)False

Question 15

In utility analysis,a utility curve that shows a rapid increase in utility for initial amounts of money followed by a gradual leveling off for larger amounts of money is appropriate for a risk-seeking decision maker.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A)  Bayes Theorem curve 
B)  decision tree 
C)  utility curve 
D)  maximax table 
A)  Bayes Theorem curve 
B)  decision tree 
C)  utility curve 
D)  maximax table

Question 17

A company wants to add a new product to its existing line of products.There are two similar candidate products,A and B.The demand for the new product could be high,medium,or low,with probabilities of .25,.5,and .25,respectively.The demand and the corresponding profit for each product are shown below.

Accepted Answer

Product A has a higher expecte

Question 18

Alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (SI)represent the levels of demand for the company products.S1,S2,and S3 characterize high,medium,and low demand,respectively.The payoff values are in thousands of dollars.   The management believes that weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports show 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.If the weather conditions are favorable,determine which manufacturing strategy the company should implement.

Accepted Answer

Question 19

Alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (SI)represent the levels of demand for the company products.s1,s2,and s3 characterize high,medium,and low demand,respectively.The payoff values are in thousands of dollars.Prior probabilities are .3 for s1;.6 for s2,and .1 for s3.   What is the maximum amount that the company would be willing to pay for perfect information?

Accepted Answer

EVPI = 17 EMV₁= (.3)(110)+ (.6)

Question 20

Alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt.The level of demand affects the success of both strategies.The states of nature (SI)represent the levels of demand for the company products.S1,S2,and S3 characterize high,medium,and low demand,with probabilities of .3,.6,and .1,respectively.The payoff values are in thousands of dollars.   The management believes that weather conditions significantly affect the level of demand.48 monthly sales reports are randomly selected.These monthly sales reports show 15 months with high demand,28 months with medium demand,and 5 months with low demand.12 of the 15 months with high demand had favorable weather conditions.14 of the 28 months with medium demand had favorable weather conditions.Only 1 of the 5 months with low demand had favorable weather conditions.The estimated probabilities of poor weather conditions given different levels of demand are presented below.   What is the probability of high demand given that the weather conditions are poor?

Accepted Answer

A)  .06 
B)  .44 
C)  .1371 
D)  .12 
E)  .1818 
A)  .06 
B)  .44 
C)  .1371 
D)  .12 
E)  .1818

The maximax criterion finds the worst possible payoff for each alternative and then chooses the alternative that yields the maximum of those worst possible payoffs.

Decision makers in business organizations make most decisions in environments that involve some degree of ___________________.

In utility theory,a(n)__________________ decision maker is an individual who will choose the decision alternative having the highest expected profit.

When making a decision in an environment of ________________,the likelihood of each state of nature can be estimated.

The ____________________criterion for choosing among alternative actions assumes that the state of nature with the best payoff will be experienced.

The maximin criterion is preferred by optimistic decision makers.

The expected net gain of sampling equals the ____________________ minus the cost of sampling.

__________________ statistics is an area of statistics that uses a theorem to update prior belief about a probability or population parameter to a posterior belief.

Maximax is a criterion used when making decisions under uncertainty.

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

The expected value criterion is used for decision making under __________________.

The maximax criterion is preferred by pessimistic decision makers.

In utility analysis,a utility curve that shows a rapid increase in utility for initial amounts of money followed by a gradual leveling off for larger amounts of money is appropriate for a risk-seeking decision maker.

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

An Introduction to Business Statistics

Descriptive Statistics: Tabular and Graphical Methods

Descriptive Statistics: Numerical Methods

Probability

Discrete Random Variables

Continuous Random Variables

Sampling and Sampling Distributions

Confidence Intervals

Hypothesis Testing

Statistical Inferences for Means and Proportions

Statistical Inferences for Population Variances

Experimental Design and Analysis of Variance

Chi-Square Tests

Simple Linear Regression Analysis

Multiple Regression and Model Building

Time Series Forecasting and Index Numbers

Nonparametric Methods

Filters

Exam 18: Decision Theory

The maximax criterion finds the worst possible payoff for each alternative and then chooses the alternative that yields the maximum of those worst possible payoffs.

Decision makers in business organizations make most decisions in environments that involve some degree of ___________________.

In utility theory,a(n)__________________ decision maker is an individual who will choose the decision alternative having the highest expected profit.

When making a decision in an environment of ________________,the likelihood of each state of nature can be estimated.

The ____________________criterion for choosing among alternative actions assumes that the state of nature with the best payoff will be experienced.

The maximin criterion is preferred by optimistic decision makers.

The expected net gain of sampling equals the ____________________ minus the cost of sampling.

__________________ statistics is an area of statistics that uses a theorem to update prior belief about a probability or population parameter to a posterior belief.

Maximax is a criterion used when making decisions under uncertainty.

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

The expected value criterion is used for decision making under __________________.

The maximax criterion is preferred by pessimistic decision makers.

In utility analysis,a utility curve that shows a rapid increase in utility for initial amounts of money followed by a gradual leveling off for larger amounts of money is appropriate for a risk-seeking decision maker.

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

An Introduction to Business Statistics

Descriptive Statistics: Tabular and Graphical Methods

Descriptive Statistics: Numerical Methods

Probability

Discrete Random Variables

Continuous Random Variables

Sampling and Sampling Distributions

Confidence Intervals

Hypothesis Testing

Statistical Inferences for Means and Proportions

Statistical Inferences for Population Variances

Experimental Design and Analysis of Variance

Chi-Square Tests

Simple Linear Regression Analysis

Multiple Regression and Model Building

Time Series Forecasting and Index Numbers

Nonparametric Methods

Filters