Exam 19: Decision 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 "net loss of $50,000" 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 Hurwicz criterion with alpha = 0.9,the appropriate choice is ______.

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 ____________.

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 _________.

Trey Leeman,Operations Manager at National Consumers,Inc.(NCI),is evaluating alternatives for increasing capacity at NCI's Fountain Hill plant.He has identified four alternatives,and has constructed the following payoff table which shows payoffs (in $1,000,000's)for the three possible levels of market demand. The opportunity loss for the combination "Purchase New Equipment" and "Low" 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 ________.

In a decision analysis problem,variables (such as general macroeconomic conditions)which are not under the decision maker's control are called prior probabilities.

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

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 ________

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. If Melissa uses the EMV criterion,the appropriate choice would be: ________.

Consider the following decision table with rewards in $ millions. Using the maximin 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. If the advisor predicts a Bear market the EMV of the Stocks alternative,using revised probabilities,is ________.

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 EMV of investing in Stocks 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 revised probability of a Bull market,P (S1|F1),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 Hurwicz criterion with alpha = 0.5,the appropriate choice 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 ________.

In a decision-making under uncertainty scenario,the decision maker attempts to develop a strategy based on payoffs since virtually no information is available about which state of nature will occur.

The value of sample information is the difference between the expected monetary value with information to the expected monetary value without information.