Question 1

Application of Bayes' theorem enables us to compute​

Accepted Answer

A) ​the prior probability of each state of nature 
B) ​the posterior probability of each sample outcome 
C) ​the conditional probability of the sample outcomes given each state of nature 
D) ​the conditional probability of the states of nature given each sample outcome 
A) ​the prior probability of each state of nature 
B) ​the posterior probability of each sample outcome 
C) ​the conditional probability of the sample outcomes given each state of nature 
D) ​the conditional probability of the states of nature given each sample outcome

Question 2

The table shows both prospective profits and losses for a company,depending on what decision is made and what state of nature occurs.Use the information to determine what the company should do.
​​
​
   
a.if an optimistic strategy is used.
b.if a conservative strategy is used.
c.if minimax regret is the strategy.

Accepted Answer

​
 a. @#LAT-DLM&
b.

Question 3

The efficiency of sample information is

Accepted Answer

A) EVSI*(100%) 
B) EVSI/EVPI*(100%) 
C) EVwoSI/EVwoPI*(100%) 
D) EVwSI/EVwoSI*(100%) 
A) EVSI*(100%) 
B) EVSI/EVPI*(100%) 
C) EVwoSI/EVwoPI*(100%) 
D) EVwSI/EVwoSI*(100%)

Question 4

​The difference between the expected value of an optimal strategy based on sample information and the "best" expected value without any sample information is called the

Accepted Answer

A) ​information sensitivity. 
B) ​expected value of sample information. 
C) ​expected value of perfect information. 
D) ​efficiency of sample information. 
A) ​information sensitivity. 
B) ​expected value of sample information. 
C) ​expected value of perfect information. 
D) ​efficiency of sample information.

Question 5

If P(high)= .3,P(low)= .7,P(favorable | high)= .9,and P(unfavorable | low)= .6,then P(favorable)=

Accepted Answer

A) .10 
B) .27 
C) .30 
D) .55 
A) .10 
B) .27 
C) .30 
D) .55

Question 6

A decision strategy is a sequence of decisions and chance outcomes,where the decisions chosen depend on the yet to be determined outcomes of chance events.

Accepted Answer

A) True 
 B)False

Question 7

A payoff

Accepted Answer

A) is always measured in profit. 
B) is always measured in cost. 
C) exists for each pair of decision alternative and state of nature. 
D) exists for each state of nature. 
A) is always measured in profit. 
B) is always measured in cost. 
C) exists for each pair of decision alternative and state of nature. 
D) exists for each state of nature.

Question 8

If sample information is obtained,the result of the sample information will be either positive or negative.No matter which result occurs,the choice to select option A or option B exists.And no matter which option is chosen,the eventual outcome will be good or poor.Complete the table.
 $$\begin{array} { l l l l l l } 
\text { Sample } & \text { States of } & \text { Prior } & \text { Conditional } & \text { Joint } & \text { Posterior } \
\text { Result } & \text { Nature } & \text { Probabilities } & \text { Probabilities } & \text { Probabilities } & \text { Probabilities } \
\hline \text { Positive } & \text { good } & .7 & \text { P(positive } \mid \text { good } ) = .8 & & \
& \text { poor } & .3 & \text { P(positive } \mid \text { poor } ) = .1 & & \
\hline \text { Negative } & \text { good } & .7 & \text { P(negative } \mid \text { good) } = & & \
& \text { poor } & .3 & \text { P(negative } \mid \text { poor } ) = & &
\end{array}$$

Accepted Answer

\[\begin{array} { l l l l l l } 
\text {

Question 9

A fashion designer wants to produce a new line of clothes.In the production of the clothes,expensive,medium-priced,or inexpensive materials can be used.The profit associated with each type of material depends upon economic conditions next year.Below you are given the payoff table.
​
​
 $$\begin{array} { c | c c c } 
\text { Decisions } & \begin{array} { c } 
\text { Economy } \
\text { Improves }
\end{array} & \begin{array} { c } 
\text { Economy } \
\text { Stays the Same }
\end{array} & \begin{array} { c } 
\text { Economy } \
\text { Gets Worse }
\end{array} \
\hline \text { Expensive } & 80,000 & 40,000 & 10,000 \
\text { Medium } & 40,000 & 60,000 & 70,000 \
\text { Inexpensive } & 10,000 & 30,000 & 60,000
\end{array}$$ An economist believes that the probability that the economy will improve is 20%,the probability that the economy will stay the same is 70%,and the probability that the economy will get worse is 10%.
​ 
a.Compute the expected value for each investment.Which investment is the best?
b.Compute the expected value of perfect information.​

Accepted Answer

​
​
​
 a.

Question 10

Use a diagram to compare EVwPI,EVwoPI,EVPI,EVwSI,EVwoSI,and EVSI.

Accepted Answer

EVwPI (Expected Value with Perfect Infor

Question 11

A decision tree

Accepted Answer

A) presents all decision alternatives first and follows them with all states of nature. 
B) presents all states of nature first and follows them with all decision alternatives. 
C) alternates the decision alternatives and states of nature. 
D) arranges decision alternatives and states of nature in their natural chronological order. 
A) presents all decision alternatives first and follows them with all states of nature. 
B) presents all states of nature first and follows them with all decision alternatives. 
C) alternates the decision alternatives and states of nature. 
D) arranges decision alternatives and states of nature in their natural chronological order.

Question 12

Super Cola is also considering the introduction of a root beer drink.The company feels that the probability that the product will be a success is .6.The payoff table is as follows:
​
   The company has a choice of two research firms to obtain information for this product.Stanton Marketing has market indicators,I1 and I2 for which P(I1 | s1)= .7 and P(I1 | s2)= .4.New World Marketing has indicators J1 and J2 for which P(J1 | s1)= .6 and P(J1 | s2)= .3. 
a.​
What is the optimal decision if neither firm is used? Over what probability of success range is this decision optimal?
b.What is the EVPI?
c.Find the EVSIs and efficiencies for Stanton and New World.
d.If both firms charge $5,000,which firm should be hired?
e.​
If Stanton charges $10,000 and New World charges $4,000,which firm should Super Cola hire? Why?

Accepted Answer

a. Introduce root beer; @#LAT-DLM&

b. @#LAT-DLM& EVPI @#LAT-DLM&
NOTE

Question 13

The expected value of an alternative can never be negative.

Accepted Answer

A) True 
 B)False

Question 14

Maximizing the expected payoff and minimizing the expected opportunity loss result in the same recommended decision.

Accepted Answer

A) True 
 B)False

Question 15

An investor has a choice between four investments.The profitability of the investments depends upon the market.The payoff table is given below for different market conditions.
​
​
   
a.A market economist has stated that there is a 25% chance that the market will stay the same,a 35% chance that the market will decrease,and a 40% chance that the market will increase.Compute the expected value for each investment.Which investment is the best?
b.Compute the expected value of perfect information.​

Accepted Answer

​
​
​
 a.

Question 16

Risk analysis helps the decision maker recognize the difference between the expected value of a decision alternative and the payoff that may actually occur.

Accepted Answer

A) True 
 B)False

Question 17

In an influence diagram,decision nodes are represented by

Accepted Answer

A) circles or ovals 
B) squares or rectangles 
C) diamonds 
D) triangles 
A) circles or ovals 
B) squares or rectangles 
C) diamonds 
D) triangles

Question 18

Show how you would design a spreadsheet to calculate revised probabilities for two states of nature and two indicators.

Accepted Answer

To design a spreadsheet to calculate rev

Question 19

Making a good decision

Accepted Answer

A) requires probabilities for all states of nature. 
B) requires a clear understanding of decision alternatives,states of nature,and payoffs. 
C) implies that a desirable outcome will occur. 
D) All of the alternatives are true. 
A) requires probabilities for all states of nature. 
B) requires a clear understanding of decision alternatives,states of nature,and payoffs. 
C) implies that a desirable outcome will occur. 
D) All of the alternatives are true.

Question 20

Decision alternatives are structured so that several could occur simultaneously.

Accepted Answer

A) True 
 B)False

Application of Bayes' theorem enables us to compute

The efficiency of sample information is

The difference between the expected value of an optimal strategy based on sample information and the "best" expected value without any sample information is called the

If P(high)= .3,P(low)= .7,P(favorable | high)= .9,and P(unfavorable | low)= .6,then P(favorable)=

A decision strategy is a sequence of decisions and chance outcomes,where the decisions chosen depend on the yet to be determined outcomes of chance events.

A payoff

Use a diagram to compare EVwPI,EVwoPI,EVPI,EVwSI,EVwoSI,and EVSI.

A decision tree

The expected value of an alternative can never be negative.

Maximizing the expected payoff and minimizing the expected opportunity loss result in the same recommended decision.

Risk analysis helps the decision maker recognize the difference between the expected value of a decision alternative and the payoff that may actually occur.

In an influence diagram,decision nodes are represented by

Show how you would design a spreadsheet to calculate revised probabilities for two states of nature and two indicators.

Making a good decision

Decision alternatives are structured so that several could occur simultaneously.

Introduction

Introduction to Probability

Probability Distributions

Utility Game Theory

Time Series Analysis Forecasting

Intro to Linear Programming

LP Sensitivity Analysis

LP Applications

Distribution Network Models

Integer Linear Programming

Advanced Optimization Applications

Project Scheduling

Inventory Models

Waiting Line Models

Simulation

Markov Processes

Filters

Exam 4: Decision Analysis

Application of Bayes' theorem enables us to compute​

The efficiency of sample information is

​The difference between the expected value of an optimal strategy based on sample information and the "best" expected value without any sample information is called the

If P(high)= .3,P(low)= .7,P(favorable | high)= .9,and P(unfavorable | low)= .6,then P(favorable)=

A decision strategy is a sequence of decisions and chance outcomes,where the decisions chosen depend on the yet to be determined outcomes of chance events.

A payoff

Use a diagram to compare EVwPI,EVwoPI,EVPI,EVwSI,EVwoSI,and EVSI.

A decision tree

The expected value of an alternative can never be negative.

Maximizing the expected payoff and minimizing the expected opportunity loss result in the same recommended decision.

Risk analysis helps the decision maker recognize the difference between the expected value of a decision alternative and the payoff that may actually occur.

In an influence diagram,decision nodes are represented by

Show how you would design a spreadsheet to calculate revised probabilities for two states of nature and two indicators.

Making a good decision

Decision alternatives are structured so that several could occur simultaneously.

Introduction

Introduction to Probability

Probability Distributions

Utility Game Theory

Time Series Analysis Forecasting

Intro to Linear Programming

LP Sensitivity Analysis

LP Applications

Distribution Network Models

Integer Linear Programming

Advanced Optimization Applications

Project Scheduling

Inventory Models

Waiting Line Models

Simulation

Markov Processes

Filters

Application of Bayes' theorem enables us to compute

The difference between the expected value of an optimal strategy based on sample information and the "best" expected value without any sample information is called the