Exam 14: Decision Analysis

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. Complete the following table to prepare the spreadsheet for use in generating a Weighted Score radar chart?

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. -Suppose that the regrets for an alternative with three states of nature are: 20, 10, and 0. The probabilities of these states of nature are 0.2, 0.3, and 0.5, respectively. The expected regret for the alternative is equal to

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. -Refer to Exhibit 14.6. What formula should go in cell C13 of the probability table?

Exhibit 14.14 The following questions use the Decision Tree model and strategy table information below. -Refer to Exhibit 14.14. Why does the strategy table, examining the risk associated with P(G|A) and P(G|B) never show "Sell A" or "Trade B for D" as selected options?

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%. -In decision-making, luck

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%. -Based on the radar chart of the weighted scores provided below, which of the following interpretations is incorrect? ​ ​

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. -Refer to Exhibit 14.1. What decision should be made according to the maximax decision rule?

Exhibit 14.4 The following questions are based on the information below. -Refer to Exhibit 14.4. What formula should go in cell D14 of the spreadsheet to compute the EVPI?

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. -Which one of these is not used in decision-making under risk?

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. -Refer to Exhibit 14.7. What is the expected value of Alternative 2 for this decision maker?

Exhibit 14.11 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 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. The company has developed the following conditional probability table for their decision problem. -Refer to Exhibit 14.11. What is P(F∩H), where F = favorable response and H = high demand?

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. -Decision analysis supports all but one of the following goals. Which goal is not supported?

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%. -Which decision rule pessimistically assumes that nature will always be "against us" 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%. -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 be weak or strong. The investor has estimated the probability of a declining economy at 30% and an expanding economy at 70%. Draw the decision tree for this problem and determine the correct decision for this investor based on the expected monetary value criteria.

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. -Decision Analysis techniques provide modeling techniques to help decision makers make decisions. Which of the following is not typically a benefit of decision analysis?

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. -The minimum EOL in a decision problem will always

Exhibit 14.4 The following questions are based on the information below. -Refer to Exhibit 14.4. What is the expected value with perfect information for the investor?

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 certainty equivalent for this problem?

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. What formula should go in cell F11 and copied to cells F12:F13 of the Price worksheet to compute the Price Score?

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. -Refer to Exhibit 14.8. The Consistency Ratio indicates consistency in the pairwise comparison matrix if the ratio is