Deck 17: An Introduction to Decision Theory

Question 1

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the market declines in the next year, which of the following statements are correct?
i. The Opportunity Loss for Company A is $300.
ii. The Opportunity Loss for Company B is $0.
iii. The Opportunity Loss for Company C is $50.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (ii) and (iii) are correct statements but not (i).
E) All statements are false

Answer 1

(i), (ii) and (iii) are all correct statements

Question 2

Consider the following decision table in which w, x, y, and z are decision alternatives and A and B are the two possible states of nature, with probabilities 0.40 and 0.60. The expected value for decision w is__________

A) 40
B) 75
C) 80
D) 220
E) 30

Answer 2

40

Question 3

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the market rises in the next year, which of the following statements are correct?
i. The Opportunity Loss for Company A is $200.
ii. The Opportunity Loss for Company B is $200.
iii. The Opportunity Loss for Company C is $200.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (i) and (ii) are correct statements but not (iii).
E) All statements are false

Answer 3

(ii) is a correct statement but not (i) or (iii).

Question 4

The states of nature are:

A) The choices available to the decision maker
B) The uncontrollable future events
C) A comparison of each combination of decision alternatives and the state of nature
D) None of the above

Question 5

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the Market rising in the next year is 0.50, which of the following statements are correct?
i. The Expected Monetary Value for Company A is $1,450.
ii. The Expected Monetary Value for Company B is $1,600.
iii. The Expected Monetary Value for Company C is $1,475.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (i) and (iii) are correct statements but not (ii).
D) (i) and (ii) are correct statements but not (iii).
E) All statements are false

Question 6

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the market declining in the next year is 0.4, which of the following statements are correct?
i. The Expected Opportunity Loss for Company A is $120.
ii. The Expected Opportunity Loss for Company B is $120.
iii. The Expected Opportunity Loss for Company C is $440.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (ii) and (iii) are correct statements but not (i).
E) All statements are false

Question 7

Consider the following decision table in which w, x, y, and z are decision alternatives and A and B are the two possible states of nature, with probabilities 0.40 and 0.60. The expected value for decision x is__________

A) 40
B) 75
C) 80
D) 220
E) 30

Question 8

Consider the following decision table in which w, x, y, and z are decision alternatives and A and B are the two possible states of nature, with probabilities 0.40 and 0.60. The expected value for decision y is__________

A) 40
B) 28
C) 50
D) 22
E) 15

Question 9

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the market declines in the next year, which of the following statements are correct?
i. The Opportunity Loss for Company A is $300.
ii. The Opportunity Loss for Company B is $30.
iii. The Opportunity Loss for Company C is $500.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (ii) and (iii) are correct statements but not (i).
E) All statements are false

Question 10

Consider the following decision table in which w, x, y, and z are decision alternatives and A and B are the two possible states of nature, with probabilities 0.40 and 0.60. The expected value for decision z is__________

A) 110
B) 200
C) 170
D) 140
E) 150

Question 11

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the market declining in the next year is 0.4, which of the following statements are correct?
i. The Expected Opportunity Loss for Company A is $20.
ii. The Expected Opportunity Loss for Company B is $120.
iii. The Expected Opportunity Loss for Company C is $440.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (ii) and (iii) are correct statements but not (i).
E) All statements are false

Question 12

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the Market rising in the next year is 0.50, which of the following statements are correct?
i. The Opportunity Loss for Company A is $1,460.
ii. The Opportunity Loss for Company B is $1,600.
iii. The Opportunity Loss for Company C is $1,475.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (i) and (iii) are correct statements but not (ii).
D) (i) and (ii) are correct statements but not (iii).
E) All statements are false

Question 13

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the Market rising in the next year is 0.60, which of the following statements are correct?
i. The Expected Monetary Value for Company A is $1,860.
ii. The Expected Monetary Value for Company B is $1,860.
iii. The Expected Monetary Value for Company C is $1,860.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (i) and (iii) are correct statements but not (ii).
D) (i) and (ii) are correct statements but not (iii).
E) All statements are false

Question 14

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the market declining in the next year is 0.4, which of the following statements are correct?
i. The Expected Opportunity Loss for Company A is $300.
ii. The Expected Opportunity Loss for Company B is $30.
iii. The Expected Opportunity Loss for Company C is $500.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (ii) and (iii) are correct statements but not (i).
E) All statements are false

Question 15

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the Market rising in the next year is 0.60, which of the following statements are correct?
i. The Expected Monetary Value for Company A is $1,860.
ii. The Expected Monetary Value for Company B is $1,860.
iii. The Expected Monetary Value for Company C is $1,540.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (i) and, (iii) are correct statements but not (ii).
D) (i) and (ii) are correct statements but not (iii).
E) All statements are false

Question 16

A payoff table is needed to:

A) Control for possible future events
B) Inform the decision maker of the choices available
C) Compare each combination of decision alternative and state of nature.
D) None of the above

Question 17

An investor has a 35% chance of making $1,000 and a 65% chance of making $10,000, what is the expected payoff for this investor?

A) $11,000
B) $6,850
C) $7,500
D) None of the above

Question 18

I You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the market rises in the next year, which of the following statements are correct?
i. The Opportunity Loss for Company A is $200.
ii. The Opportunity Loss for Company B is $200.
ii. The Opportunity Loss for Company C is $700.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (ii) and (iii) are correct statements but not (i).
E) All statements are false

Question 19

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the Market rising in the next year is 0.50, which of the following statements are correct?
i. The Expected Monetary Value for Company A is $1,450.
ii. The Expected Monetary Value for Company B is $1,960.
iii. The Expected Monetary Value for Company C is $1,500.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (i) and, (iii) are correct statements but not (ii).
D) (i) and (ii) are correct statements but not (iii).
E) All statements are false

Question 20

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the Market rising in the next year is 0.60, which of the following statements are correct?
i. The Opportunity Loss for Company A is $1,860.
ii. The Opportunity Loss for Company B is $1,860.
iii. The Opportunity Loss for Company C is $1,540.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (i) and (iii) are correct statements but not (ii).
D) (i) and (ii) are correct statements but not (iii).
E) All statements are false

Question 21

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the market rises in the next year, which of the following statements are correct?
i. The Opportunity Loss for Company A is $200.
ii. The Opportunity Loss for Company B is $0.
iii. The Opportunity Loss for Company C is $400.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (i) and (ii) are correct statements but not (iii).
E) All statements are false

Question 22

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the market declining in the next year is 0.5, which of the following statements are correct?
i. The Expected value of stock purchased under conditions of certainty is $1,980.
ii. The Expected value of perfect information is $75.
iii. The Expected value of perfect information is $180.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (iii) is a correct statement but not (i) or (ii).
E) (i) and (ii) are correct statements but not (iii).

Question 23

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the market declining in the next year is 0.4, which of the following statements are correct?
i. The Expected value of stock purchased under conditions of certainty is $1,980.
ii. The Expected value of perfect information is $120.
iii. The Expected value of perfect information is $180.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (iii) is a correct statement but not (i) or (ii).
E) (i) and (ii) are correct statements but not (iii).

Question 24

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the market declining in the next year is 0.5, which of the following statements are correct?
i. The Expected Opportunity Loss for Company A is $20.
ii. The Expected Opportunity Loss for Company B is $75.
iii. The Expected Opportunity Loss for Company C is $440.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (ii) and (iii) are correct statements but not (i).
E) All statements are false

Question 25

The maximin strategy:

A) Minimizes the maximum gain
B) Maximizes the minimum gain.
C) Minimizes the maximum regret.
D) Maximizes the minimum regret

Question 26

Given the following decision table in which x, y, and z are decision alternatives and A and B are states of nature. Which alternative would be chosen if using the maximin criterion?

A) A
B) B
C) x
D) y
E) z

Question 27

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the market declines in the next year, which of the following statements are correct?
i. The Opportunity Loss for Company A is $250.
ii. The Opportunity Loss for Company B is $30.
iii. The Opportunity Loss for Company C is $500.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (ii) and (iii) are correct statements but not (i).
E) All statements are false

Question 28

The alternative which offers the lowest EOL is the same as the one which

A) Offers the highest expected payoff
B) Maximizes the minimum gain
C) Minimizes the maximum loss
D) Maximizes the maximum gain

Question 29

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the market declining in the next year is 0.5, which of the following statements are correct?
i. The Expected value of stock purchased under conditions of certainty is $1,675.
ii. The Expected value of stock purchased under conditions of certainty is $2,200.
iii. The Expected value of stock purchased under conditions of certainty is $1,150.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (iii) is a correct statement but not (i) or (ii).
E) All statements are false

Question 30

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the market rises in the next year, which of the following statements are correct?
i. The Opportunity Loss for Company A is $200.
ii. The Opportunity Loss for Company B is $200.
iii. The Opportunity Loss for Company C is $700.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (ii) and (iii) are correct statements but not (i).
E) All statements are false

Question 31

i)EVPI = Expected value under conditions of certainty-Optimal decision under conditions of uncertainty
Ii) Three regret strategies that are often used are Maximin, Maximax, and Minimax
Iii) Rankings of the decision alternatives are frequently not highly sensitive to changes in the applied probabilities within a plausible range.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (i) and (iii) are correct statements but not (ii).
D) (ii) and (iii) are correct statements but not (i).
E) All statements are false

Question 32

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the market declines in the next year, which of the following statements are correct?
i. The Opportunity Loss for Company A is $250.
ii. The Opportunity Loss for Company B is $150.
iii. The Opportunity Loss for Company C is $0.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (ii) and (iii) are correct statements but not (i).
E) All statements are false

Question 33

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the market declining in the next year is 0.5, which of the following statements are correct?
i. The Expected Opportunity Loss for Company A is $120.
ii. The Expected Opportunity Loss for Company B is $75.
iii. The Expected Opportunity Loss for Company C is $200.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (ii) and (iii) are correct statements but not (i).
E) All statements are false

Question 34

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the market declining in the next year is 0.4, which of the following statements are correct?
i. The Expected value of stock purchased under conditions of certainty is $1,980.
ii. The Expected value of stock purchased under conditions of certainty is $120.
iii. The Expected value of stock purchased under conditions of certainty is $440.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (iii) is a correct statement but not (i) or (ii).
E) All statements are false

Question 35

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the market declining in the next year is 0.5, which of the following statements are correct?
i. The Expected value of stock purchased under conditions of certainty is $1,675.
ii. The Expected value of perfect information is $75.
iii. The Expected value of perfect information is $180.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (iii) is a correct statement but not (i) or (ii).
E) (i) and (ii) are correct statements but not (iii).

Question 36

Given the following decision table in which x, y, and z are decision alternatives and A and B are states of nature. Which alternative would be chosen if using the maximax criterion?

A) A
B) B
C) x
D) y
E) z

Question 37

You are trying to decide in which of the three companies you should invest. Refer to the following Payoff Table. If the probability of the market declining in the next year is 0.5, which of the following statements are correct?
i. The Expected Opportunity Loss for Company A is $225.
ii. The Expected Opportunity Loss for Company B is $75.
iii. The Expected Opportunity Loss for Company C is $200.

A) (i), (ii) and (iii) are all correct statements
B) (i) is a correct statement but not (ii) or (iii).
C) (ii) is a correct statement but not (i) or (iii).
D) (ii) and (iii) are correct statements but not (i).
E) All statements are false