Exam 13: Decision Analysis

When monetary value is not the sole measure of the true worth of the outcome to the decision maker,monetary value should be replaced by utility.

If p is the probability of Event 1 and (1 − p)is the probability of Event 2,for what values of p would you choose A? B? C? Values in the table are payoffs.

Which of the following is NOT an advantage of using decision tree analysis?

Determine decision strategies based on expected value and on expected utility for this decision tree.Use the following utility function: ​ ​

Sunshine Manufacturing Company has developed a unique new product and must now decide between two facility plans.The first alternative is to build a large new facility immediately.The second alternative is to build a small plant initially and to consider expanding it to a larger facility three years later if the market has proven favorable.​ Marketing has provided the following probability estimates for a 10-year plan: ​ If the small plant is expanded,the probability of demands over the remaining seven years is 7/8 for favorable and 1/8 for unfavorable.The accounting department has provided the payoff for each outcome.​ Use these estimates to analyze Sunshine's facility decision.​ a.Perform a complete decision tree analysis. b.Recommend a strategy to Sunshine. c.Determine what payoffs will result from your recommendation. ​

A risk avoider is a decision maker who would choose a guaranteed payoff over a lottery with a superior expected payoff.

Under the minimax regret approach to decision making,EVPI equals the expected regret that is associated with the minimax decision.

EVPI is always greater than or equal to EVSI.

A decision maker has the following utility function: ​ ​ What is the risk premium for the payoff of 50?

Circular nodes in a decision tree are considered chance nodes.

States of nature should be defined so that one and only one will actually occur.

Maximizing the expected payoff and minimizing the expected opportunity loss result in the same recommended decision.

A decision maker whose utility function graphs as a straight line is

Consider the following problem with four states of nature,three decision alternatives,and the following payoff table (in $s): ​ ​ The indifference probabilities for three individuals are as follows: ​ ​ a.Classify each person as a risk avoider,risk taker,or risk neutral. b.For the payoff of $400,what premium will the risk avoider pay to avoid risk? What premium will the risk taker pay to have the opportunity of the high payoff? c.Suppose each state is equally likely.What are the optimal decisions for each of these three people? ​

A high efficiency rating indicates that the sample information is almost as good as perfect information.

For a minimization problem,the optimistic approach is often referred to as the

When the expected utility approach and the expected value approach applied to monetary payoffs result in the same action,these are characteristics generally associated with a risk-neutral decision maker.

The options from which a decision maker chooses a course of action are

A decision maker who is considered to be a risk taker is faced with this set of probabilities and payoffs.​ ​ For the lottery p(80)+ (1 -p)(-50),this decision maker has assessed the following indifference probabilities: ​ ​ Rank the decision alternatives on the basis of expected value and on the basis of expected utility.

A payoff