Question 1

A decision tree branches out all of the possible decisions and all of the possible events.

Accepted Answer

A) True 
 B)False

Question 2

Refer to the following payoff table:
 
There is an option of paying $100 to have research done to better predict which state of nature will occur. When the true state of nature is S1, the research will accurately predict S1 60% of the time. When the true state of nature is S2, the research will accurately predict S2 80% of the time.
Given that the research is done, what is the joint probability that the state of nature is S1 and the research predicts S2?

Accepted Answer

A)  0.08 
B)  0.16 
C)  0.24 
D)  0.32 
E)  0.36 
A)  0.08 
B)  0.16 
C)  0.24 
D)  0.32 
E)  0.36

Question 3

Refer to the following payoff table:
 
There is an option of paying $100 to have research done to better predict which state of nature will occur. When the true state of nature is S1, the research will accurately predict S1 60% of the time. When the true state of nature is S2, the research will accurately predict S2 80% of the time.
Given that the research is done, what is the joint probability that the state of nature is S2 and the research predicts S2?

Accepted Answer

A)  0.08 
B)  0.16 
C)  0.24 
D)  0.32 
E)  0.36 
A)  0.08 
B)  0.16 
C)  0.24 
D)  0.32 
E)  0.36

Question 4

In decision analysis, states of nature refer to possible future conditions.

Accepted Answer

A) True 
 B)False

Question 5

The maximin approach involves choosing the alternative that has the "best worst" payoff.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is not a criterion for decision making?

Accepted Answer

A)  EVPI. 
B)  Maximin 
C)  Maximax 
D)  Bayes' decision rule 
E)  Maximum likelihood 
A)  EVPI. 
B)  Maximin 
C)  Maximax 
D)  Bayes' decision rule 
E)  Maximum likelihood

Question 7

Based on the following payoff table, answer the following:
$$\begin{array} { | l | r | r | r |} 
\hline { \text { Alternative } } & \text { High } &  { \text { Medium } } &  { \text { Low } } \
\hline \text { A } & 20 & 20 & 5 \
\hline \mathrm { B } & 25 & 30 & 11 \
\hline \mathrm { C } & 30 & 12 & 13 \
\hline \mathrm { D } & 10 & 12 & 12 \
\hline \mathrm { E } & 50 & 40 & - 28 \
\hline \text { Prior Probability } & 0.3 & 0.2 & 0.5 \
\hline
\end{array}$$
The maximin strategy is:

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
E)  E. 
A)  A. 
B)  B. 
C)  C. 
D)  D. 
E)  E.

Question 8

Based on the following payoff table, answer the following:
$$\begin{array} { | l | r | r | } 
\hline { \text { Alternative } } &  { \text { Yes } } & { \text { No } } \
\hline \text { Brmall } & 10 & 30 \
\hline \text { Medium } & 20 & 40 \
\hline \text { Mediurn Large } & 30 & 45 \
\hline \text { Large } & 40 & 35 \
\hline \text { Extra Large } & 60 & 20 \
\hline \text { Prior Probability } & 0.3 & 0.7 \
\hline
\end{array}$$
The maximax strategy is:

Accepted Answer

A)  small. 
B)  medium. 
C)  medium large. 
D)  large. 
E)  extra large. 
A)  small. 
B)  medium. 
C)  medium large. 
D)  large. 
E)  extra large.

Question 9

Two professors at a nearby university want to co-author a new textbook in either economics or statistics. They feel that if they write an economics book they have a 50% chance of placing it with a major publisher where it should ultimately sell about 40,000 copies. If they can't get a major publisher to take it, then they feel they have an 80% chance of placing it with a smaller publisher, with sales of 30,000 copies. On the other hand if they write a statistics book, they feel they have a 40% chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they can't get a major publisher to take it, they feel they have a 50% chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies.
What is the expected payoff for the decision to write the economics book?

Accepted Answer

A)  50,000 copies 
B)  40,000 copies 
C)  32,000 copies 
D)  30,500 copies 
E)  10,500 copies 
A)  50,000 copies 
B)  40,000 copies 
C)  32,000 copies 
D)  30,500 copies 
E)  10,500 copies

Question 10

The construction manager for ABC Construction must decide whether to build single family homes, apartments, or condominiums. He estimates annual profits (in $000) will vary with the population trend as follows:
 
What is the expected annual profit for the dwellings that he will decide to build using Bayes' decision rule?

Accepted Answer

A)  $187,000 
B)  $132,000 
C)  $123,000 
D)  $65,000 
E)  $55,000 
A)  $187,000 
B)  $132,000 
C)  $123,000 
D)  $65,000 
E)  $55,000

Question 11

Based on the following payoff table, answer the following:
$$\begin{array} { | l | r | r | r |} 
\hline { \text { Alternative } } & \text { High } &  { \text { Medium } } &  { \text { Low } } \
\hline \text { A } & 20 & 20 & 5 \
\hline \mathrm { B } & 25 & 30 & 11 \
\hline \mathrm { C } & 30 & 12 & 13 \
\hline \mathrm { D } & 10 & 12 & 12 \
\hline \mathrm { E } & 50 & 40 & - 28 \
\hline \text { Prior Probability } & 0.3 & 0.2 & 0.5 \
\hline
\end{array}$$
The maximum likelihood strategy is:

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
E)  E. 
A)  A. 
B)  B. 
C)  C. 
D)  D. 
E)  E.

Question 12

Using Bayes' decision rule will always lead to larger payoffs.

Accepted Answer

A) True 
 B)False

Question 13

Refer to the following payoff table:
 
There is an option of paying $100 to have research done to better predict which state of nature will occur. When the true state of nature is S1, the research will accurately predict S1 60% of the time. When the true state of nature is S2, the research will accurately predict S2 80% of the time.
What is the posterior probability of S1 given that the research predicts S1?

Accepted Answer

A)  0.18 
B)  0.44 
C)  0.57 
D)  0.65 
E)  0.82 
A)  0.18 
B)  0.44 
C)  0.57 
D)  0.65 
E)  0.82

Question 14

A utility function for money can be constructed by applying a lottery procedure.

Accepted Answer

A) True 
 B)False

Question 15

Two professors at a nearby university want to co-author a new textbook in either economics or statistics. They feel that if they write an economics book they have a 50% chance of placing it with a major publisher where it should ultimately sell about 40,000 copies. If they can't get a major publisher to take it, then they feel they have an 80% chance of placing it with a smaller publisher, with sales of 30,000 copies. On the other hand if they write a statistics book, they feel they have a 40% chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they can't get a major publisher to take it, they feel they have a 50% chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies.
What is the probability that the economics book would wind up being placed with a smaller publisher?

Accepted Answer

A)  0.8 
B)  0.5 
C)  0.4 
D)  0.2 
E)  0.1 
A)  0.8 
B)  0.5 
C)  0.4 
D)  0.2 
E)  0.1

Question 16

Refer to the following payoff table:
 
There is an option of paying $100 to have research done to better predict which state of nature will occur. When the true state of nature is S1, the research will accurately predict S1 60% of the time. When the true state of nature is S2, the research will accurately predict S2 80% of the time.
Given that the research is done, what is the expected payoff using Bayes' decision rule?

Accepted Answer

A)  −82 
B)  −44 
C)  0 
D)  29 
E)  40 
A)  −82 
B)  −44 
C)  0 
D)  29 
E)  40

Question 17

A risk-averse decision maker is trying to decide which alternative to choose. The payoff table for the alternatives, given two possible states of nature, is shown below. Assuming that the decision makers risk tolerance (R) is 5, which decision should she choose based on the utility of each outcome? Assume the exponential utility function is applicable.
$$\begin{array} { | l | r | r | } 
\hline { \text { Alternative } } & \text { High } & { \text { Low } } \
\hline \text { A } & 20 & 5 \
\hline \mathrm { B } & 25 & 11 \
\hline \mathrm { C } & 30 & 15 \
\hline \mathrm { D } & 10 & 12 \
\hline \mathrm { E } & 50 & - 28 \
\hline \text { Prior Probability } & 0.3 & 0.7 \
\hline
\end{array}$$

Accepted Answer

A)  Alternative A 
B)  Alternative B 
C)  Alternative C 
D)  Alternative D 
E)  Alternative E 
A)  Alternative A 
B)  Alternative B 
C)  Alternative C 
D)  Alternative D 
E)  Alternative E

Question 18

Refer to the following payoff table:
 
There is an option of paying $100 to have research done to better predict which state of nature will occur. When the true state of nature is S1, the research will accurately predict S1 60% of the time. When the true state of nature is S2, the research will accurately predict S2 80% of the time.
Given that the research is done, what is the joint probability that the state of nature is S2 and the research predicts S1?

Accepted Answer

A)  0.08 
B)  0.16 
C)  0.24 
D)  0.32 
E)  0.36 
A)  0.08 
B)  0.16 
C)  0.24 
D)  0.32 
E)  0.36

Question 19

The equally likely criterion assigns a probability of 0.5 to each state of nature.

Accepted Answer

A) True 
 B)False

Question 20

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. She feels that script #1 has a 70% chance of earning $100 million over the long run, but a 30% chance of losing $20 million. If this movie is successful, then a sequel could also be produced, with an 80% chance of earning $50 million, but a 20% chance of losing $10 million. On the other hand, she feels that script #2 has a 60 % chance of earning $120 million, but a 40% chance of losing $30 million. If successful, its sequel would have a 50% chance of earning $80 million and a 50% chance of losing $40 million. As with the first script, if the original movie is a "flop," then no sequel would be produced.
What would be the total payoff is script #1 were a success, but its sequel were not?

Accepted Answer

A)  $150 million 
B)  $100 million 
C)  $90 million 
D)  $50 million 
E)  $−10 million 
A)  $150 million 
B)  $100 million 
C)  $90 million 
D)  $50 million 
E)  $−10 million

A decision tree branches out all of the possible decisions and all of the possible events.

In decision analysis, states of nature refer to possible future conditions.

The maximin approach involves choosing the alternative that has the "best worst" payoff.

Which of the following is not a criterion for decision making?

Based on the following payoff table, answer the following: Alternative High Medium Low A 20 20 5 25 30 11 30 12 13 10 12 12 50 40 -28 Prior Probability 0.3 0.2 0.5 The maximin strategy is:

Based on the following payoff table, answer the following: Alternative Yes No Brmall 10 30 Medium 20 40 Mediurn Large 30 45 Large 40 35 Extra Large 60 20 Prior Probability 0.3 0.7 The maximax strategy is:

Based on the following payoff table, answer the following: Alternative High Medium Low A 20 20 5 25 30 11 30 12 13 10 12 12 50 40 -28 Prior Probability 0.3 0.2 0.5 The maximum likelihood strategy is:

Using Bayes' decision rule will always lead to larger payoffs.

A utility function for money can be constructed by applying a lottery procedure.

The equally likely criterion assigns a probability of 0.5 to each state of nature.

Introduction

Linear Programming: Basic Concepts

Linear Programming: Formulation and Applications

The Art of Modeling With Spreadsheets

What-If Analysis for Linear Programming

Network Optimization Problems

Using Binary Integer Programming to Deal With Yes-Or-No Decisions

Nonlinear Programming

Forecasting

Queueing Models

Computer Simulation: Basic Concepts

Computer Simulation With Analytic Solver

Filters

Exam 9: Decision Analysis

A decision tree branches out all of the possible decisions and all of the possible events.

In decision analysis, states of nature refer to possible future conditions.

The maximin approach involves choosing the alternative that has the "best worst" payoff.

Which of the following is not a criterion for decision making?

Based on the following payoff table, answer the following: Alternative High Medium Low A 20 20 5 25 30 11 30 12 13 10 12 12 50 40 -28 Prior Probability 0.3 0.2 0.5 The maximin strategy is:

Based on the following payoff table, answer the following: Alternative Yes No Brmall 10 30 Medium 20 40 Mediurn Large 30 45 Large 40 35 Extra Large 60 20 Prior Probability 0.3 0.7 The maximax strategy is:

Based on the following payoff table, answer the following: Alternative High Medium Low A 20 20 5 25 30 11 30 12 13 10 12 12 50 40 -28 Prior Probability 0.3 0.2 0.5 The maximum likelihood strategy is:

Using Bayes' decision rule will always lead to larger payoffs.

A utility function for money can be constructed by applying a lottery procedure.

The equally likely criterion assigns a probability of 0.5 to each state of nature.

Introduction

Linear Programming: Basic Concepts

Linear Programming: Formulation and Applications

The Art of Modeling With Spreadsheets

What-If Analysis for Linear Programming

Network Optimization Problems

Using Binary Integer Programming to Deal With Yes-Or-No Decisions

Nonlinear Programming

Forecasting

Queueing Models

Computer Simulation: Basic Concepts

Computer Simulation With Analytic Solver

Filters