Question 1.1
The decision theory processes of maximizing expected monetary value (EMV) and minimizing expected opportunity loss (EOL) should lead us to choose the same alternatives.
True
False
Question 2. 2.
A utility curve showing utility increasing at an increasing rate as the monetary value increases represents
a risk avoider.
utility assessment.
a risk seeker.
conditional values.
expected utilities
Question 3. 3.
Any problem that can be presented in a decision table can also be graphically portrayed in a decision tree.
True
False
Question 4. 4.
The optimistic decision criterion is the criterion of ________.
Maximax
Maximin
Realism.
equally likely
minimax regret
Question 5. 5.
To determine the effect of input changes on decision results, we should perform a sensitivity analysis.
True
False
Question 6. 6.
A rational decision maker must choose between two alternatives.
Alternative 1 has a higher EMV than Alternative 2, but the decision maker chooses Alternative 2. What might explain why this occurs?
Alternative 2 may have a higher expected utility.
Alternative 1 may have a lower expected opportunity loss.
The probabilities are not known.
A rational decision maker could not possibly choose alternative 2.
None of the above
Question 7. 7.
Consider the following payoff table.
| |
STATE OF
|
NATURE
|
|
ALTERNATIVES
|
A
|
B
|
|
Alternative 1
|
100
|
150
|
|
Alternative 2
|
200
|
100
|
|
Probability
|
0.4
|
0.6
|
The alternative that provides the greatest expected monetary value (EMV) is
Alternative 1 with EMV of 130
Alternative 1 with EMV of 140
Alternative 2 with EMV of 130
Alternative 2 with EMV of 140
None of the above
Question 8. 8.
Nick has plans to open some pizza restaurants, but he is not sure how many to open. He has prepared a payoff table to
| |
STATE
|
OF
|
NATURE
|
|
ALTERNATIVES
|
GOOD MARKET
|
FAIR MARKET
|
POOR MARKET
|
|
Open 1
|
380,000
|
70,000
|
-400,000
|
|
Open 2
|
200,000
|
80,000
|
-200,000
|
|
Do Nothing
|
0
|
0
|
0
|
As Nick does not know how his product will be received, he assumes that all three states of nature are equally likely to occur.
If he uses the equally likely criterion, what decision would he make?
Open 1
Open 2
Good market
Fair market
Do nothing
Question 9. 9.
A pessimistic decision making criterion is
maximax.
equally likely.
maximin.
decision making under certainty.
minimax regret.
Question 10. 10.
Expected monetary value (EMV) is
the average or expected monetary outcome of a decision if it can be repeated a large number of times.
the average or expected value of the decision, if you know what would happen ahead of time.
the average or expected value of information if it were completely accurate.
the amount you would lose by not picking the best alternative
a decision criterion that places an equal weight on all states of nature.
Question 11. 11.
In decision making under ________, there are several possible outcomes for each alternative, and the decision maker does not know the probabilities of the various outcomes
Risk
Utility
Certainty
Probability
Uncertainty
Question 12. 12.
True
False
Question 13. 13.
The following is an opportunity-loss table
| |
STATE
|
OF
|
|
ALTERNATIVES
|
A
|
B
|
|
Alternative 1
|
20
|
100
|
|
Alternative 2
|
100
|
0
|
|
Alternative 3
|
0
|
40
|
The probabilities for the states of nature A, B, and C are 0.3, 0.5, and 0.2, respectively. If a person were to use the expected opportunity loss criterion, what decision would be made?
Alternative 1
Alternative 2
Alternative 3
State of Nature C
State of Nature B
Question 14. 14.
A risk avoider is a person for whom the utility of an outcome
decreases as the monetary value increases
stays the same as monetary value increases
increases at an increasing rate as the monetary value increases.
increases at a decreasing rate as monetary value increases.
None of the above
Question 15. 15.
Which of the following is not considered a criteria for decision making under uncertainty?
optimistic
pessimistic
equally likely
random selection
minimax regret
Question 16. 16.
Consider the following payoff table.
| |
STATE OF
|
NATURE
|
|
ALTERNATIVES
|
A
|
B
|
|
Alternative 1
|
100
|
150
|
|
Alternative 2
|
200
|
100
|
|
Probability
|
0.4
|
0.6
|
How much should be paid for a perfect forecast of the state of nature (EVPI)?
170
30
10
100
40
Question 17. 17.
The following is a payoff table giving profits for various situations.
| |
STATE
|
OF
|
NATURE
|
| |
A
|
B
|
C
|
|
Alternative 1
|
120
|
140
|
120
|
|
Alternative 2
|
200
|
100
|
50
|
|
Alternative 3
|
100
|
120
|
180
|
|
Do Nothing
|
0
|
0
|
0
|
What decision would a pessimist make?
Alternative 1
Alternative 2
Alternative 3
Do Nothing
State of Nature A
Question 18. 18.
An analytic and systematic approach to the study of decision making is referred to as
decision making under risk.
decision making under uncertainty.
decision theory.
decision analysis.
decision making under certainty.
Question 19. 19.
Another name for a decision table is a ________.
Payment table
Payout table
Payoff table
Pay-up table
Decision tree
Question 20. 20.
The EMV approach and Utility theory always result in the same choice of alternatives.
True
False
Question 21. 21.
The decision theory processes of maximizing expected monetary value (EMV) and minimizing expected opportunity loss (EOL) should lead us to choose the same alternatives
True
False
Question 22. 22.
The difference in decision making under risk and decision making under uncertainty is that under risk, we think we know the probabilities of the states of nature, while under uncertainty we do not know the probabilities of the states of nature.
True
False
Question 23. 23.
The following is a payoff table giving profits for various situations
| |
STATE
|
OF
|
NATURE
|
| |
A
|
B
|
C
|
|
Alternative 1
|
120
|
140
|
120
|
|
Alternative 2
|
200
|
100
|
50
|
|
Alternative 3
|
100
|
120
|
180
|
|
Do Nothing
|
0
|
0
|
0
|
What decision would an optimist make?
Alternative 1
Alternative 2
Alternative 3
Do Nothing
State of Nature A
Question 24. 24.
The following is an opportunity loss table.
| |
STATE
|
OF
|
NATURE
|
| |
A
|
B
|
C
|
|
Alternative 1
|
30
|
0
|
10
|
|
Alternative 2
|
5
|
20
|
0
|
|
Alternative 3
|
0
|
20
|
25
|
What decision should be made based on the minimax regret criterion?
Alternative 1
Alternative 2
Alternative 3
State of Nature C
Does not matter
Question 25. 25.
The several criteria (maximax, maximin, equally likely, criterion of realism, minimax regret) used for decision making under uncertainty may lead to the choice of different alternatives
True
False