Exam 14: Decision Analysis

Exhibit 14.13 The following questions use the information below. A student wants to buy a new car. She has three cars to choose from, A, B and C. The cars differ with respect to price, performance and looks. The student has developed the following AHP tables for price and summary. The other tables are not shown due to space limitations. -A company is planning a plant expansion. They can build a large or small plant. The payoffs for the plant depend on the level of consumer demand for the company's products. The company believes that there is a 72% chance that demand for their products will be high and a 28% chance that it will be low. The company can pay a market research firm to survey consumer attitudes towards the company's products. There is a 76% chance that the customers will like the products and a 24% chance that they won't. The payoff matrix and costs of the two plants are listed below. The company believes that if the survey is favorable there is an 87% chance that demand will be high for the products. If the survey is unfavorable there is only a 25% chance that the demand will be high. Draw the decision tree for the problem when the survey is performed before the plant size decision is made. ​

Exhibit 14.8 The following questions use the information below. A company needs to buy a new insurance policy. They have three policies to choose from, A, B and C. The policies differ with respect to price, coverage and ease of billing. The company has developed the following AHP tables for price and summary. The other tables are not shown due to space limitations. -Which decision rule optimistically assumes that nature will always be "on our side" regardless of what decision we make?

Exhibit 14.10 The following questions are based on the information below. An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 80% and an expanding economy at 20%. -A convenience store chain is considering opening a new store at one of four locations. They have developed the following multi-criteria scoring model for this problem. Complete the table for this problem. What location should they choose based on this information? ​

The decision rules that assume that probabilities of occurrence can be assigned to the states of nature in a decision problem are called probabilistic methods.

Exhibit 14.7 The following questions use the information below. A decision maker is faced with two alternatives. The decision maker has determined that she is indifferent between the two alternatives when p = 0.45. -A state of nature

Exhibit 14.7 The following questions use the information below. A decision maker is faced with two alternatives. The decision maker has determined that she is indifferent between the two alternatives when p = 0.45. -The category of decision rules that contains the maximax decision rule is the

Exhibit 14.9 The following questions are based on the information below. An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the investment decision problem. -A convenience store chain is considering opening a new store at one of four locations. They have developed the following multi-criteria scoring model for this problem. What formulas must be placed in cells C13:F16 to compute the weighted scores for use in generating a Weighted Score radar chart?

Exhibit 14.3 The following questions are based on the information below. An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 70% and an expanding economy at 30%. -The decision rule which determines the minimum payoff for each alternative and then selects the alternative associated with the largest minimum payoff is the

Exhibit 14.13 The following questions use the information below. A student wants to buy a new car. She has three cars to choose from, A, B and C. The cars differ with respect to price, performance and looks. The student has developed the following AHP tables for price and summary. The other tables are not shown due to space limitations. -Refer to Exhibit 14.13. Which car should the student choose based on the Summary worksheet?

Exhibit 14.5 The following questions are based on the information below. An investor is considering 4 investments, A, B, C, D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following decision tree has been developed for the problem. The investor has estimated the probability of a declining economy at 40% and an expanding economy at 60%. -Refer to Exhibit 14.5. How high can P(E) go before the investor's decision, based on expected monetary value criteria, changes?

Which of the following is a goal of decision analysis?

Exhibit 14.5 The following questions are based on the information below. An investor is considering 4 investments, A, B, C, D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following decision tree has been developed for the problem. The investor has estimated the probability of a declining economy at 40% and an expanding economy at 60%. -A square node in a decision tree is called a(n) ____ node.

Exhibit 14.8 The following questions use the information below. A company needs to buy a new insurance policy. They have three policies to choose from, A, B and C. The policies differ with respect to price, coverage and ease of billing. The company has developed the following AHP tables for price and summary. The other tables are not shown due to space limitations. -Every nonprobabilistic method has a weakness for decision making. Which of the following is incorrect regarding a method and its weakness?

Exhibit 14.1 The following questions are based on the information below. An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. -In a graphical representation of decision trees the event nodes are represented by

Exhibit 14.9 The following questions are based on the information below. An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the investment decision problem. -Refer to Exhibit 14.9. What decision should be made according to the maximin decision rule?

Exhibit 14.2 The following questions are based on the information below. An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. -A course of action intended to solve a problem is called a(n)

Exhibit 14.5 The following questions are based on the information below. An investor is considering 4 investments, A, B, C, D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following decision tree has been developed for the problem. The investor has estimated the probability of a declining economy at 40% and an expanding economy at 60%. -The scores in a scoring model can be thought of as subjective assessments of

Under maximin rule a decision maker hedges against the worst possible outcome of a decision.

Exhibit 14.12 The following questions use the information below. A decision maker is faced with two alternatives. The decision maker has determined that she is indifferent between the two alternatives when p = 0.7. -Refer to Exhibit 14.12. What is the decision maker's risk premium for this problem?

Exhibit 14.6 The following questions use the information below. A company is planning a plant expansion. They can build a large or small plant. The payoffs for the plant depend on the level of consumer demand for the company's products. The company believes that there is an 69% chance that demand for their products will be high and a 31% chance that it will be low. The company can pay a market research firm to survey consumer attitudes towards the company's products. There is a 63% chance that the customers will like the products and a 37% chance that they won't. The payoff matrix and costs of the two plants are listed below. The company believes that if the survey is favorable there is a 92% chance that demand will be high for the products. If the survey is unfavorable there is only a 30% chance that the demand will be high. The following decision tree has been built for this problem. The company has computed that the expected monetary value of the best decision without sample information is 154.35 million. The company has developed the following conditional probability table for their decision problem. -Which of the following summarizes the final outcome for each decision alternative?