Exam 12: Decision Analysis

The quality control manager for ENTA Inc. must decide whether to accept (A1), further analyze (A2), or reject (A3) a lot of incoming material. Assume the following payoff table is available. Historical data indicates that there is 30% chance that the lot is poor quality (S1), 50 % chance that the lot is fair quality (S2), and 20% chance that the lot is good quality (S3). 20 30 90 60 70 10 80 50 40 -What is the maximum amount that you would be willing to pay for perfect information?

The quality control manager for ENTA Inc. must decide whether to accept (A1), further analyze (A2), or reject (A3) a lot of incoming material. Assume the following payoff table is available. Historical data indicates that there is 30% chance that the lot is poor quality (S1), 50 % chance that the lot is fair quality (S2), and 20% chance that the lot is good quality (S3). 20 30 90 60 70 10 80 50 40 -What action would you choose according to maximin criterion?

A group of friends are planning a recreational outing and have constructed the following payoff table to help them decide which activity to engage in. Assume that the payoffs represent their level of enjoyment for each activity under the various weather conditions. Weather Cold Warm Rainy Bike: Al 10 8 6 Hike: A2 14 15 2 Fish: A3 7 8 9 -If the group is optimistic, what decision should they make?

The basic decision environment categories are

A posterior probability is the likelihood that an event has occurred after the decision maker has reached a decision.

A small entrepreneurial company is trying to decide between developing two different products that they believe they can sell to two potential companies, one large and one small. If they develop Product A, they have a 50% chance of selling it to the large company with annual purchases of about 20,000 units. If the large company won't purchase it, then they think they have an 80% chance of placing it with a smaller company, with sales of 15,000 units. On the other hand if they develop Product B, they feel they have a 40% chance of selling it to the large company, resulting in annual sales of about 17,000 units. If the large company doesn't buy it, they have a 50% chance of selling it to the small company with sales of 20,000 units. -How many units of Product A can they expect to sell?

People who forgo a high expected value to avoid a disaster with a low probability are ________.

Napoleon is contemplating four institutions of higher learning as options for a Masters in Business Administration. Each university has strong and weak points and the demand for MBA graduates is uncertain. The availability of jobs, student loans, and financial support will have a significant impact on Napoleon's ultimate decision. Vanderbilt and Seattle University have comparatively high tuition, which would necessitate Napoleon take out student loans resulting in possibly substantial student loan debt. In a tight market, degrees with that cachet might spell the difference between a hefty paycheck and a piddling unemployment check. Northeastern State University and Texas Tech University hold the advantage of comparatively low tuition but a more regional appeal in a tight job market. Napoleon gathers his advisory council of Kip and Pedro to assist with the decision. Together they forecast three possible scenarios for the job market and institutional success and predict annual cash flows associated with an MBA from each institution. All cash flows in the table are in thousands of dollars. School Scenario 1 Scenario 2 Scenario 3 Vanderbilt 95 20 -10 Texas Tech 55 60 60 Seattle 90 10 80 Northeastern State 65 50 60 -Summer bursts into the meeting and announces that there's another way to consider the issue. Since Napoleon will have to live with his choice for the rest of his life, he might consider selecting the alternative that will cause him the least pain in hindsight when he compares his outcome with what he might have gained. Which criterion is she talking about, what is the best school for this criterion, and why?

A tabular presentation that shows the outcome for each decision alternative under the various possible states of nature is called a

Napoleon is contemplating four institutions of higher learning as options for a Masters in Business Administration. Each university has strong and weak points and the demand for MBA graduates is uncertain. The availability of jobs, student loans, and financial support will have a significant impact on Napoleon's ultimate decision. Vanderbilt and Seattle University have comparatively high tuition, which would necessitate Napoleon take out student loans resulting in possibly substantial student loan debt. In a tight market, degrees with that cachet might spell the difference between a hefty paycheck and a piddling unemployment check. Northeastern State University and Texas Tech University hold the advantage of comparatively low tuition but a more regional appeal in a tight job market. Napoleon gathers his advisory council of Kip and Pedro to assist with the decision. Together they forecast three possible scenarios for the job market and institutional success and predict annual cash flows associated with an MBA from each institution. All cash flows in the table are in thousands of dollars. School Scenario 1 Scenario 2 Scenario 3 Vanderbilt 95 20 -10 Texas Tech 55 60 60 Seattle 90 10 80 Northeastern State 65 50 60 -Under which criterion is Seattle University the optimal decision?

Napoleon is contemplating four institutions of higher learning as options for a Masters in Business Administration. Each university has strong and weak points and the demand for MBA graduates is uncertain. The availability of jobs, student loans, and financial support will have a significant impact on Napoleon's ultimate decision. Vanderbilt and Seattle University have comparatively high tuition, which would necessitate Napoleon take out student loans resulting in possibly substantial student loan debt. In a tight market, degrees with that cachet might spell the difference between a hefty paycheck and a piddling unemployment check. Northeastern State University and Texas Tech University hold the advantage of comparatively low tuition but a more regional appeal in a tight job market. Napoleon gathers his advisory council of Kip and Pedro to assist with the decision. Together they forecast three possible scenarios for the job market and institutional success and predict annual cash flows associated with an MBA from each institution. All cash flows in the table are in thousands of dollars. School Scenario 1 Scenario 2 Scenario 3 Vanderbilt 95 20 -10 Texas Tech 55 60 60 Seattle 90 10 80 Northeastern State 65 50 60 -Napoleon doesn't know what to think, since he has no idea which scenario will happen. Which criterion is he well-suited for and what is his decision?

When the ________ criterion is used, the decision maker selects the decision alternative that minimizes the maximum regret.

Additional information is used to alter the marginal probability of occurrence of an event in Bayesian analysis.

The efficiency of sample information is the ratio of the expected value of sample information to the

The efficiency of sample information multiplied by the expected value of perfect information is ________.

Napoleon is contemplating four institutions of higher learning as options for a Masters in Business Administration. Each university has strong and weak points and the demand for MBA graduates is uncertain. The availability of jobs, student loans, and financial support will have a significant impact on Napoleon's ultimate decision. Vanderbilt and Seattle University have comparatively high tuition, which would necessitate Napoleon take out student loans resulting in possibly substantial student loan debt. In a tight market, degrees with that cachet might spell the difference between a hefty paycheck and a piddling unemployment check. Northeastern State University and Texas Tech University hold the advantage of comparatively low tuition but a more regional appeal in a tight job market. Napoleon gathers his advisory council of Kip and Pedro to assist with the decision. Together they forecast three possible scenarios for the job market and institutional success and predict annual cash flows associated with an MBA from each institution. All cash flows in the table are in thousands of dollars. School Scenario 1 Scenario 2 Scenario 3 Vanderbilt 95 20 -10 Texas Tech 55 60 60 Seattle 90 10 80 Northeastern State 65 50 60 -Napoleon's Uncle Rico believes that the scenarios are not necessarily equally likely, and suggests that the likelihood of occurrence of Scenario 2 is 0.4 and the likelihood of occurrence of Scenarios 1 and 3 are both 0.3. What two criteria are most appropriate and what is the resulting decision?

A(n) ________ decision is one that has a better payoff than another decision under each state of nature.

The quality control manager for ENTA Inc. must decide whether to accept (A1), further analyze (A2), or reject (A3) a lot of incoming material. Assume the following payoff table is available. Historical data indicates that there is 30% chance that the lot is poor quality (S1), 50 % chance that the lot is fair quality (S2), and 20% chance that the lot is good quality (S3). 20 30 90 60 70 10 80 50 40 -What action would you choose according to maximax criterion?

A ________ structures decisions with a series of nodes.

The term opportunity loss is most closely related to