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Exam 14: Decision Analysis

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Question 41

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Which are characteristics of decision-making under uncertainty?

A) the probability of possible future events is unknown
B) decision-makers must rely on probabilities in evaluating outcomes
C) all process parameters have known values
D) some process parameters have known values

E) B) and C)
F) A) and C)

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Question 42

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Exhibit 14.4 The following questions are based on the information below. -Refer to Exhibit 14.4.What is the expected value of perfect information for the investor?

A) 13.5
B) 20
C) 45.5
D) 59

E) A) and B)
F) None of the above

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Question 43

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Exhibit 14.9 The following questions are based on the information below. An investor is considering 4 investments,W,X,Y,and Z.The payoff from each investment is a function of the economic climate over the next 2 years.The economy can expand or decline.The following payoff matrix has been developed for the investment decision problem. $\begin{array}{|c|c|c|c|c|c|}\hline & \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & E \\\hline 1 & & \begin{array}{|ll} & \text { Payoff } \\\text { Matrix } & \\\end{array} & & & \\\hline 2 & & & & & \\\hline 3 & & \text { Economy } & & & \\\hline 4 & \text { Investment } & \text { Decline } & \text { Expand } & & \text { Choice } \\\hline 5 & \mathrm{~W} & 0 & 80 & & \\\hline 6 & \mathrm{X} & \begin{array}{l}3 \\0 \\\end{array} & 70 & & \\\hline 7 & \mathrm{Y} & \begin{array}{l}5 \\0 \\\end{array} & 35 & & \\\hline 8 & z & \begin{array}{l}2 \\0 \\\end{array} & 20 & & \\\hline & \text { Payoffs } & & & & \\\hline\end{array}$ -Refer to Exhibit 14.9.What formula should go in cell D5 and get copied to D6:D8 to implement the maximin decision rule?

Exhibit 14.9 The following questions are based on the information below. An investor is considering 4 investments,W,X,Y,and Z.The payoff from each investment is a function of the economic climate over the next 2 years.The economy can expand or decline.The following payoff matrix has been developed for the investment decision problem. $\begin{array}{|c|c|c|c|c|c|}\hline & \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & E \\\hline 1 & & \begin{array}{|ll} & \text { Payoff } \\\text { Matrix } & \\\end{array} & & & \\\hline 2 & & & & & \\\hline 3 & & \text { Economy } & & & \\\hline 4 & \text { Investment } & \text { Decline } & \text { Expand } & & \text { Choice } \\\hline 5 & \mathrm{~W} & 0 & 80 & & \\\hline 6 & \mathrm{X} & \begin{array}{l}3 \\0 \\\end{array} & 70 & & \\\hline 7 & \mathrm{Y} & \begin{array}{l}5 \\0 \\\end{array} & 35 & & \\\hline 8 & z & \begin{array}{l}2 \\0 \\\end{array} & 20 & & \\\hline & \text { Payoffs } & & & & \\\hline\end{array}$ -Refer to Exhibit 14.9.What decision should be made according to the maximax decision rule?

The scores in a scoring model range from

Probabilistic decision rules can be used if the states of nature in a decision problem can be assigned probabilities that represent their likelihood of occurrence.Which of the following is not true regarding the probabilities employed?

Sensitivity analysis is most useful in

Which one of these is not used in decision-making under risk?

Every nonprobabilistic method has a weakness for decision making.Which of the following is incorrect regarding a method and its weakness?

Exhibit 14.6 The following questions use the information below. A company is planning a plant expansion.They can build a large or small plant.The payoffs for the plant depend on the level of consumer demand for the company's products.The company believes that there is an 69% chance that demand for their products will be high and a 31% chance that it will be low.The company can pay a market research firm to survey consumer attitudes towards the company's products.There is a 63% chance that the customers will like the products and a 37% chance that they won't.The payoff matrix and costs of the two plants are listed below.The company believes that if the survey is favorable there is a 92% chance that demand will be high for the products.If the survey is unfavorable there is only a 30% chance that the demand will be high.The following decision tree has been built for this problem.The company has computed that the expected monetary value of the best decision without sample information is 154.35 million.The company has developed the following conditional probability table for their decision problem. -Refer to Exhibit 14.6.What formula should go in cell C13 of the probability table?

A circular node in a decision tree is called an) node.

Decision Analysis techniques provide modeling techniques to help decision makers make decisions.Which of the following is not typically a benefit of decision analysis?

Business decision models can be categorized as

A state of nature

Exhibit 14.3 The following questions are based on the information below. An investor is considering 4 investments,A,B,C and leaving his money in the bank.The payoff from each investment is a function of the economic climate over the next 2 years.The economy can expand or decline.The following payoff matrix has been developed for the decision problem.The investor has estimated the probability of a declining economy at 70% and an expanding economy at 30%. -Refer to Exhibit 14.3.What formula should go in cell F5 and copied to F6:F8 of the spreadsheet if the expected regret decision rule is to be used?

Leaves of a decision tree are also called nodes.

Exhibit 14.12 The following questions use the information below.A decision maker is faced with two alternatives. Alternative 1: Receive $40,000 with certainty Alternative 2: Receive $80,000 with probability p and lose $5,000 with probability 1 − p). The decision maker has determined that she is indifferent between the two alternatives when p = 0.7. -Refer to Exhibit 14.12.What is the expected value of Alternative 2 for this decision maker?

Based on the radar chart of the weighted scores provided below,which of the following interpretations is incorrect?

Exhibit 14.1 The following questions are based on the information below. An investor is considering 4 investments,A,B,C and leaving his money in the bank.The payoff from each investment is a function of the economic climate over the next 2 years.The economy can expand or decline.The following payoff matrix has been developed for the decision problem. -Refer to Exhibit 14.1.What formula should go in cell D5 to implement the maximax decision rule?

Exhibit 14.3 The following questions are based on the information below. An investor is considering 4 investments,A,B,C and leaving his money in the bank.The payoff from each investment is a function of the economic climate over the next 2 years.The economy can expand or decline.The following payoff matrix has been developed for the decision problem.The investor has estimated the probability of a declining economy at 70% and an expanding economy at 30%. -Refer to Exhibit 14.3.What decision should be made according to the expected monetary value decision rule?