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. The probability that the advisor predicts a Bull market and the Bull market is the actual condition p(F₁ᴖS₁₎ is ________.

Consider the following decision table with rewards in $ millions. The opportunity loss for the combination "S₂" and "d₁" 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 "oil in the tract" 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 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 ________.

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 ____.

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.

In a decision-making under uncertainty scenario using the strategy of minmax regret,all the entries in the opportunity loss table must be zero or positive.

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 ________.

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 ________.

In decision-making under risk,the expected monetary payoff of perfect information is the weighted average of the best payoff for each state of nature (using the probability of the state of nature as the weight).

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. If Trey uses the maximax criterion,the appropriate alternative would be: _____________.

The value of perfect information is the difference between the monetary payoff with perfect information and the expected monetary payoff with no information.

The expected monetary payoff of perfect information is the value of perfect information.

In decision-making under uncertainty,an optimistic approach is the __________.

In a decision-making under uncertainty scenario,the decision maker chooses the decision alternative that has the minimum expected (i.e.,probability-weighted)payoff among all the available alternatives.

In decision-making under risk,the expected monetary value without information is the largest of the expected monetary values for the various decision alternatives.

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

Consider the following decision table with rewards in $ millions. The opportunity loss for the combination "S₃" and "d₁" 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.The probability of the state of nature "oil in the tract" is unknown.If Dan is a pessimist,he would choose the ____________.