Exam 21: Decision-Making Tools

The last step in the analytic decision process clearly defines the problem and the factors that influence it.

The outcome of an alternative/state of nature combination is a(n)

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

Define expected monetary value (EMV).

Earl Shell owns his own Sno-Cone business and lives 30 miles from a beach resort.The sale of Sno-Cones is highly dependent upon his location and upon the weather.At the resort,he will profit $110 per day in fair weather,$20 per day in foul weather.At home,he will profit $70 in fair weather,$50 in foul weather.Assume that on any particular day,the weather service suggests a 60% chance of fair weather. a.Construct Earl's payoff table. b.What decision is recommended by the expected value criterion? c.What is the EVPI?

A(n)________ is a tabular means of analyzing decision alternatives and states of nature.

If a decision maker can assign probabilities of occurrences to the states of nature,then the decision-making environment is Decision Making under Uncertainty.

Decision trees and decision tables can both solve problems requiring a single decision,but decision tables are the preferred method when a sequence of decisions is involved.

A state of nature is an occurrence of a situation over which the decision maker has little or no control.

How is the expected value of perfect information (EVPI)found?

Doing nothing would yield how much profit if favorable market conditions prevail according to the following decision table?

An operations manager's staff has compiled the information below for four manufacturing alternatives (E,F,G,and H)that vary by production technology and the capacity of the machinery.All choices enable the same level of total production and have the same lifetime.The four states of nature represent four levels of consumer acceptance of the firm's products.Values in the table are net present value of future profits in millions of dollars.Forecasts indicate that there is a 0.1 probability of acceptance level 1,0.2 chance of acceptance level 2,0.4 chance of acceptance level 3,and 0.3 change of acceptance level 4. Using the criterion of expected monetary value,which production alternative should be chosen?

Miles is considering buying a new pickup truck for his lawn service firm.The economy in town seems to be growing,and he is wondering whether he should opt for a subcompact,compact,or full-size pickup truck.The smaller truck would have better fuel economy,but would sacrifice capacity and some durability.A friend at the Bureau of Economic Research told him that there is a 30% chance of lower gas prices in his area this year,a 20% chance of higher gas prices,and a 50% chance that gas prices will stay roughly unchanged.Based on this information,Miles has developed a decision table that indicates the profit amount he would end up with after a year for each combination of truck and gas prices. Calculate the expected monetary value for each decision alternative.Which decision yields the highest EMV?

The expected value of perfect information is the same as the expected value with perfect information.

What is the expected value of perfect information of the following decision table?

A square node on a decision tree infers that

What is the EMV for Option 1 in the following decision table?

What is the expected value with perfect information in the following decision table?

If a decision maker is a pessimist,what decision-making criterion is appropriate? Why?

The likelihood that a decision maker will ever receive a payoff precisely equal to the EMV when making any one decision is