Question 1

Which of the following is not one of the steps considered in the "Six Steps in Decision Making"?

Accepted Answer

A)  Clearly define the problem at hand 
B)  List the possible alternatives. 
C)  Apply the model and make your decision. 
D)  List the payoff or profit of each combination of alternatives and outcomes. 
E)  Evaluate the success of the decision.

Question 2

By studying a person's Utility Curve, one can determine whether the individual is a risk seeker, risk avoider, or is indifferent to risk.

Accepted Answer

A) True 
 B)False

Question 3

Dr. Mac, a surgeon, must decide what mode of treatment to use on Mr. Samuels. There are three modes of treatment: Mode A, B, and C; and three possible states of nature: 1.Treatment succeeds and patient leads a normal life, 2. Patient survives treatment but is permanently disabled, and 3. Patient fails to survive treatment. Dr. Mac has prepared the decision table below. What mode of treatment maximizes the expected value?

Accepted Answer

A)  Mode A 
B)  Mode B 
C)  Mode C 
D)  All three treatments are equally desirable. 
E)  Normal Life

Question 4

A manager is deciding whether or not to build a small facility. Demand is uncertain and can be either at a high or low level. If the manager chooses a small facility and demand is low, the payoff is $100. If the manager chooses a small facility and demand is high, the payoff is $300. On the other hand, if the manager chooses a large facility and demand is low, the payoff is -$200, but if demand is high, the payoff is $800.
(a) What would be the best decision based on the Laplace criterion?
(b) What would be the best decision based on Hurwicz's criterion of realism using α = 0.6?

Accepted Answer

The answer of A manager is deciding whether or not...

Question 5

The maximax decision criterion is used by pessimistic decision makers and maximizes the maximum outcome for every alternative.

Accepted Answer

A) True 
 B)False

Question 6

If one's utility curve is not a straight line (i.e., risk indifferent), then one's utility can, over a particular range of EMV,

Accepted Answer

A)  increase at an increasing rate as the monetary value increases. 
B)  increase at an increasing rate as the monetary value decreases. 
C)  increase at a decreasing rate as the monetary value increases. 
D)  increase at a decreasing rate as the monetary value decreases. 
E)  Any of the above

Question 7

Mark M. Upp has just been fired as the university bookstore manager for setting prices too low (only 20 percent above suggested retail). He is considering opening a competing bookstore near the campus, and he has begun an analysis of the situation. There are two possible sites under consideration. One is relatively small, while the other is large. If he opens at Site 1 and demand is good, he will generate a profit of $50,000. If demand is low, he will lose $10,000. If he opens at Site 2 and demand is high, he will generate a profit of $80,000, but he will lose $30,000 if demand is low. He also has the option of not opening at either site. He believes that there is a 50 percent chance that demand will be high. A market research study will cost $5,000. The probability of a good demand given a favorable study is 0.8. The probability of a good demand given an unfavorable study is 0.1. There is a 60 percent chance that the study will be favorable.
(a) Should Mark use the study? Why?
(b) If the study is done and the results are favorable, what would Mark's expected profit be?

Accepted Answer

The answer of Mark M. Upp has just been fired...

Question 8

The criterion of realism is also called the Laplace criterion.

Accepted Answer

A) True 
 B)False

Question 9

A utility curve showing utility increasing at an increasing rate as the monetary value increases represents

Accepted Answer

A)  a risk avoider. 
B)  utility assessment. 
C)  a risk seeker. 
D)  conditional values. 
E)  expected utilities.

Question 10

Expected monetary value (EMV) is the payoff you should expect to occur when you choose a particular alternative.

Accepted Answer

A) True 
 B)False

Question 11

A risk avoider is a person for whom the utility of an outcome

Accepted Answer

A)  decreases as the monetary value increases. 
B)  stays the same as monetary value increases. 
C)  increases at an increasing rate as the monetary value increases. 
D)  increases at a decreasing rate as monetary value increases. 
E)  None of the above

Question 12

The following is a payoff table.  What decision should be made based on the minimax regret criterion?

Accepted Answer

A)  Alternative 1 
B)  Alternative 2 
C)  Alternative 3 
D)  State of Nature C 
E)  Does not matter

Question 13

Consider the following payoff table.  How much should be paid for a perfect forecast of the state of nature?

Accepted Answer

A)  170 
B)  30 
C)  10 
D)  100 
E)  40

Question 14

An analytic and systematic approach to the study of decision making is referred to as

Accepted Answer

A)  decision making under risk. 
B)  decision making under uncertainty. 
C)  decision theory. 
D)  decision analysis. 
E)  decision making under certainty.

Question 15

The following is a payoff table giving profits for various situations.  The probabilities for states of nature A, B, and C are 0.3, 0.5, and 0.2, respectively. If a perfect forecast of the future were available, what is the expected value of perfect information (EVPI)?

Accepted Answer

A)  166 
B)  0 
C)  36 
D)  40 
E)  None of the above

Question 16

Briefly describe decision making under uncertainty.

Accepted Answer

The answer of Briefly describe decision making under uncertainty....

Question 17

Which of the following is not considered a criteria for decision making under uncertainty?

Accepted Answer

A)  optimistic 
B)  pessimistic 
C)  equally likely 
D)  random selection 
E)  minimax regret

Question 18

Suppose that the payoff from an investment depends upon market conditions. A great market has payoff of $200,000, a normal market has a payoff of $100,000, and a poor market has a payoff of $20,000. Using an α-value of 0.3, what is the criterion of realism value?

Accepted Answer

The answer of Suppose that the payoff from an investment...

Question 19

A company is considering expansion of its current facility to meet increasing demand. A major expansion would cost $500,000, while a minor expansion would cost $200,000. If demand is high in the future, the major expansion would result in an additional profit of $800,000, but if demand is low, then there would be a loss of $500,000. If demand is high, the minor expansion will result in an increase in profits of $200,000, but if demand is low, then there is a loss of $100,000. The company has the option of not expanding. For what probability of a high demand will the company be indifferent between the two expansion alternatives?

Accepted Answer

The answer of A company is considering expansion of its...

Question 20

A manager is deciding whether or not to build a small facility. Demand is uncertain and can be either at a high or low level. If the manager chooses a small facility and demand is low, the payoff is $300. If the manager chooses a small facility and demand is high, the payoff is $100. On the other hand, if the manager chooses a large facility and demand is low, the payoff is -$200, but if demand is high, the payoff is $800.
(a) What would be the best decision based on the maximax criterion?
(b) What would be the best decision based on the maximin criterion?
(c) What would be the best decision based on the minimax regret?

Accepted Answer

The answer of A manager is deciding whether or not...

Exam 3: Decision Analysis

Which of the following is not one of the steps considered in the "Six Steps in Decision Making"?

By studying a person's Utility Curve, one can determine whether the individual is a risk seeker, risk avoider, or is indifferent to risk.

The maximax decision criterion is used by pessimistic decision makers and maximizes the maximum outcome for every alternative.

If one's utility curve is not a straight line (i.e., risk indifferent) , then one's utility can, over a particular range of EMV,

The criterion of realism is also called the Laplace criterion.

A utility curve showing utility increasing at an increasing rate as the monetary value increases represents

Expected monetary value (EMV) is the payoff you should expect to occur when you choose a particular alternative.

A risk avoider is a person for whom the utility of an outcome

The following is a payoff table. What decision should be made based on the minimax regret criterion?

Consider the following payoff table. How much should be paid for a perfect forecast of the state of nature?

An analytic and systematic approach to the study of decision making is referred to as

The following is a payoff table giving profits for various situations. The probabilities for states of nature A, B, and C are 0.3, 0.5, and 0.2, respectively. If a perfect forecast of the future were available, what is the expected value of perfect information (EVPI) ?

Briefly describe decision making under uncertainty.

Which of the following is not considered a criteria for decision making under uncertainty?

Suppose that the payoff from an investment depends upon market conditions. A great market has payoff of $200,000, a normal market has a payoff of $100,000, and a poor market has a payoff of $20,000. Using an α-value of 0.3, what is the criterion of realism value?