11 - Decision Analytics

Expected monetary value is most appropriate for problem solving that takes place:

under conditions of risk.

Which of the following is NOT considered a step in the decision-making process?

Minimize costs whenever possible.

A retailer is deciding how many units of a certain product to stock. The historical probability distribution of sales for this product is 0 units, 0.2; 1 unit, 0.3; 2 units, 0.4, and 3 units, 0.1. The product costs $8 per unit and sells for $25 per unit. What is the conditional value (profit) for the decision alternative "Stock 3" and state of nature "Sell 1"?

$1 profit

There are three equally likely states of nature (High, Medium, and Low demand). If the large factory will post profits of $50,000, $25,000, and - $10,000 under these states of nature, respectively, what is the EMV of the factory?

$21,666.67

A plant manager wants to know how much he should be willing to pay for perfect market research. Currently there are two states of nature facing his decision to expand or do nothing. Under favorable market conditions the manager would make $100,000 for the large plant and $5,000 for the small plant. Under unfavorable market conditions the large plant would lose $50,000 and the small plant would make $0. If the two states of nature are equally likely, how much should he pay for perfect information?

$25,000

For the following decision table, the highest value for the equally likely criterion is ________; this occurs with alternative ________.

$28,000; Option 3

A retailer is deciding how many units of a certain product to stock. The historical probability distribution of sales for this product is 0 units, 0.2; 1 unit, 0.3; 2 units, 0.4, and 3 units, 0.1. The product costs $8 per unit and sells for $25 per unit. What is the largest conditional value (profit) in the entire payoff table for this scenario?

$51 profit

What is an EMV

(Figure this out)

All EXCEPT which of the following steps are taken to analyze problems with decision trees?

Assign probabilities to the alternatives.

A square node on a decision tree infers that:

Both there are several alternatives available and the manager must choose an alternative

A decision maker who uses the maximin criterion when solving a problem under conditions of uncertainty is:

a pessimist.

A problem that involves a sequence of decisions:

can be better analyzed with a decision tree than by a decision table.

What is the outcome of an alternative/state of nature combination called?

conditional value

What decision criterion would be used by an optimistic decision maker solving a problem under conditions of uncertainty?

maximax

In terms of decision theory, an occurrence or situation over which the decision maker has no control is called a(n):

state of nature.