AGEC 3413 final exam ch. 12

The difference in the expected value with additional information and without additional information is ________.

the expected value of sample information

________ is a measure of personal satisfaction derived from money

utility

The ________ is a measure of the decision maker's optimism

coefficient of optimism

The maximin approach involves choosing the alternative with the highest payoff.

False

The maximin criterion maximizes the minimum regret.

False

The minimax criterion minimizes the maximum payoff.

False

The minimax regret criterion maximizes the minimum regret.

False

#74 look at paragraph and chart He set the analysis aside for a few days and had forgotten about it completely until one night when his frequent dining companion Leonid Hurwicz visited his house and retired to the drawing room for an aperitif. "What you must do, my friend," Hurwicz began, "is to declare your coefficient of optimism, which can be tricky." After forty-five minutes of intense concentration, the cold, calculating father decided that his coefficient of optimism was 0.5. "Wait a minute Hurwicz, that figure sounds as if I'm afraid of making a decision," the father intoned. "It seems that depending on how optimistic I am, the optimal choice changes between alternative C and alternative D." What coefficient of optimism would make the cold, calculating father indifferent between these two alternatives? A) 0.096 B) 0.125 C) 0.167 D) 0.183

A. 0.096

#84 look at chart If the probability of brisk business is .40 and for slow business is .60, the expected value of perfect information is: A) 12. B) 55. C) 57. D) 69.

A. 12

#69 look at paragraph and chart "Regrets? I've had a few," and his voice trailed off. He was speaking to no one in particular, which he found himself doing with alarming frequency. If at all possible, he made decisions that would allow him to look back with as little regret as possible. Which alternative would be the best choice given this proclivity for minimizing regret? A) A B) B C) C D) D

A. A

In ________ additional information is used to alter the marginal probability of the occurrence of an event. A) Bayesian analysis B) decision analysis C) probability analysis D) decision making under certainty

A. Bayesian analysis

#81 look at chart The maximax strategy is: A) Buy. B) Rent. C) Lease. D) Brisk.

A. Buy.

#65 look at paragraph and chart What is the vacation of choice under the minimax regret criterion? A) Galapagos Islands B) Eastern Europe C) Southeast Asia D) Australia

A. Galapagos Islands

#61 look at paragraph and chart An optimistic vacationer would opt for: A) Scandinavia. B) Galapagos Islands. C) Australia. D) Eastern Europe.

A. Scandinavia.

Regret is the difference between the payoff from the: A) best decision and all other decision payoffs. B) worst decision and all other decision payoffs. C) best decision and the worst decision payoffs. D) none of the above

A. best decision and all other decision payoffs.

The Hurwicz criterion multiplies the: A) best payoff by the coefficient of optimism. B) worst payoff by the coefficient of optimism. C) best payoff by the worst payoff. D) none of the above

A. best payoff by the coefficient of optimism.

The ________ is computed by multiplying each decision outcome under each state of nature by the probability of its occurrence. A) expected value B) expected value of perfect information C) expected opportunity loss D) none of the above

A. expected value

The efficiency of sample information is the ratio of the expected value of sample information to the: A) expected value of perfect information. B) expected value. C) utilization rate. D) coefficient of optimism

A. expected value of perfect information.

The expected value of sample information: A) is never more than EVPI. B) can be greater or less than EVPI. C) can be positive or negative. D) is equivalent to the EVPI

A. is never more than EVPI.

#56 look at paragraph and chart Under which decision making criterion is Vanderbilt University the optimal choice? A) maximax B) maximin C) minimax regret D) equally likely

A. maximax

Determining the worst payoff for each alternative and choosing the alternative with the best worst is called: A) maximin. B) minimin. C) maximax. D) minimax.

A. maximin

The Hurwicz criterion: A) multiplies the worst payoff by one minus the coefficient of optimism. B) multiplies the best payoff by one minus the coefficient of optimism. C) is a compromise between the minimax and maximin criteria. D) all of the above

A. multiplies the worst payoff by one minus the coefficient of optimism.

People who take a chance on a bonanza with a very low probability of occurrence in lieu of a sure thing are: A) risk takers. B) risk averters. C) risk calculators. D) risk predictors

A. risk takers.

The appropriate criterion is dependent on: A) the risk personality of the decision maker. B) the number of nodes in the decision tree. C) the magnitude of the payoffs. D) none of the above

A. the risk personality of the decision maker.

#66 look at paragraph and chart What does the coefficient of optimism need to exceed in order for the Galapagos Islands to not be the vacation destination of choice? A) 0.80 B) 0.77 C) 0.74 D) 0.71

B. 0.77

#67 look at paragraph and chart It was tough to be optimistic, but the cold, calculating father did exactly that, inspired by a particularly smooth single malt scotch. Which alternative would be the best choice given this rare state of optimism? A) A B) B C) C D) D

B. B

#72 look at paragraph and chart He set the analysis aside for a few days and had forgotten about it completely until one night when his frequent dining companion Leonid Hurwicz visited his house and retired to the drawing room for an aperitif. "What you must do, my friend," Hurwicz began, "is to declare your coefficient of optimism, which can be tricky." After forty-five minutes of intense concentration, the cold, calculating father decided that his coefficient of optimism was 0.7. What is the optimal choice for him? A) A B) B C) C D) D

B. B

#62 look at paragraph and chart An pessimistic vacationer would opt for: A) Scandinavia. B) Galapagos Islands. C) Australia. D) Eastern Europe.

B. Galapagos Islands.

#60 look at paragraph and chart Suppose that the likelihood for each of the scenarios 1 through 3 is 0.3, 0.4, and 0.3, respectively. What is the optimal decision under the expected opportunity loss criterion? A) Vanderbilt University B) Texas Tech University C) Seattle University D) Northeastern State University

B. Texas Tech University

A ________ probability is the probability that an event will occur given that another event has already occurred. A) posterior B) conditional C) marginal D) low

B. conditional

The ________ is the expected value of the regret for each decision. A) expected value B) expected opportunity loss C) expected value of perfect information D) none of the above

B. expected opportunity loss

#57 look at paragraph and chart Under which decision making criterion is Texas Tech University the optimal decision? A) maximax B) maximin C) minimax regret D) equally likely

B. maximin

The maximin approach to decision making refers to: A) minimizing the maximum return. B) maximizing the minimum return. C) maximizing the maximum return. D) minimizing the minimum return.

B. maximizing the minimum return

The maximax criterion results in the: A) maximum of the minimum payoffs. B) maximum of the maximum payoffs. C) minimum of the maximum payoffs. D) minimum of the minimum payoffs.

B. maximum of the maximum payoffs

The ________ minimizes the maximum regret. A) maximax regret criterion B) minimax regret criterion C) minimin regret criterion D) maximin regret criterion

B. minimax regret criterion

A tabular presentation that shows the outcome for each decision alternative under the various possible states of nature is called a: A) decision tree. B) payoff table. C) feasible region. D) payback matrix

B. payoff table

People who forgo a high expected value to avoid a disaster with a low probability are: A) risk takers. B) risk averters. C) risk calculators. D) risk predictors.

B. risk averters

#98 look at paragraph What is the probability that Product A will being purchased by the smaller company? A) 0.8 B) 0.5 C) 0.4 D) 0.2

C. 0.4

#73 look at paragraph and chart He set the analysis aside for a few days and had forgotten about it completely until one night when his frequent dining companion Leonid Hurwicz visited his house and retired to the drawing room for an aperitif. "What you must do, my friend," Hurwicz began, "is to declare your coefficient of optimism, which can be tricky." After forty-five minutes of intense concentration, the cold, calculating father decided that his coefficient of optimism was 0.5. "Wait a minute Hurwicz, that figure sounds as if I'm afraid of making a decision," the father intoned. "It seems that depending on how optimistic I am, the optimal choice changes between alternative B and alternative D." What coefficient of optimism would make the cold, calculating father indifferent between these two alternatives? A) 0.583 B) 0.616 C) 0.666 D) 0.714

C. 0.666

#100 look at paragraph How many units of Product A can they expect to sell? A) 20,000 B) 17,000 C) 16,000 D) 15,000

C. 16,000

#68 look at paragraph and chart The father had built his fortune as a real estate speculator and now devoted his energies to his new passion, pessimism. Which alternative would be the best choice given this new hobby? A) A B) B C) C D) D

C. C

#63 look at paragraph and chart After staring blankly at the options for several hours, the family decides they truly have no idea which value of the dollar would be more likely and overall feel neither optimistic nor pessimistic. What's the safest choice for them to make? A) Scandinavia B) Australia C) Galapagos Islands D) Eastern Europe

C. Galapagos Islands

#82 look at chart The maximin strategy is: A) Buy. B) Rent. C) Lease. D) Brisk.

C. Lease

#83 look at chart The equal likelihood criterion strategy is: A) Buy. B) Rent. C) Lease. D) Brisk.

C. Lease

The Hurwicz criterion is a compromise: A) between the maximin and minimax criteria. B) between the minimax and maximax criteria. C) between the maximax and maximin criteria. D) none of the above

C. between the maximax and maximin criteria.

A decision tree is a diagram consisting of: A) branch angles that vary as likelihoods increase. B) triangle probability nodes. C) branches representing decision alternatives. D) perfect information

C. branches representing decision alternatives

The ________ is a measure of the decision maker's optimism. A) equal likelihood criterion B) dominant decision C) coefficient of optimism D) opportunity loss

C. coefficient of optimism

A(n) ________ is one that has a better payoff than another decision under each state of nature. A) coefficient of optimism B) equal likelihood criterion C) dominant decision D) none of the above

C. dominant decision

The ________ multiplies the decision payoff for each state of nature by an equal weight. A) dominant decision B) coefficient of optimism C) equal likelihood criterion D) none of the above

C. equal likelihood criterion

The ________ is the maximum amount a decision maker would pay for additional information. A) expected opportunity loss B) expected value C) expected value of perfect information D) bid price

C. expected value of perfect information

The maximin criterion results in the: A) minimum of the maximum payoffs. B) maximum of the maximum payoffs. C) maximum of the minimum payoffs. D) minimum of the minimum payoffs.

C. maximum of the minimum payoffs.

#59 look at paragraph and chart Under which criterion is Northeastern State University the optimal decision? A) maximax B) maximin C) minimax regret D) equally likely

C. minimax regret

The term opportunity lossis most closely related to: A) maximin regret. B) maximax regret. C) minimax regret. D) minimin regret.

C. minimax regret

The minimax regret criterion: A) maximizes the minimum regret. B) minimizes the minimum regret. C) minimizes the maximum regret. D) maximizes the maximum regret.

C. minimizes the maximum regret.

A ________ probability is the altered marginal probability of an event based on additional information. A) marginal B) conditional C) posterior D) none of the above

C. posterior

Utiles are units of ________ measures of utility. A) quantitative B) objective C) subjective D) qualitative

C. subjective

#99 look at paragraph What is the probability that Product B will being purchased by the smaller company? A) 0.8 B) 0.5 C) 0.4 D) 0.3

D. 0.3

#64 look at paragraph and chart What do the regrets look like for Scandinavia from left to right? A) 0, 21, 24 B) 0, 15, 5 C) 6, 0, 16 D) 5, 0, 12

D. 5, 0, 12

#70 look at paragraph and chart He set the analysis aside for a few days and when he noticed it on his drawing table he studied it. He vaguely remembered the potential courses of action but couldn't for the life of himself remember what the different states of nature were. "This is certainly embarrassing," he muttered. Perhaps it didn't really matter as long as he treated each state of nature as equally likely. They certainly were in his own mind now that he couldn't remember what they were. "If that's not the definition of equally likely, I don't know what is," he commented to his faithful manservant Jeeves. Which alternative would be the best choice given this predicament? A) A B) B C) C D) D

D. D

#71 look at paragraph and chart He set the analysis aside for a few days and had forgotten about it completely until one night when his frequent dining companion Leonid Hurwicz visited his house and retired to the drawing room for an aperitif. "What you must do, my friend," Hurwicz began, "is to declare your coefficient of optimism, which can be tricky." After forty-five minutes of intense concentration, the cold, calculating father decided that his coefficient of optimism was 0.5. What is the optimal choice for him? A) A B) B C) C D) D

D. D

The basic decision environment categories are: A) certainty. B) risk. C) uncertainty. D) all of the above

D. all of the above

The basic decision environment categories are: A) certainty and risk. B) risk and uncertainty. C) certainty and uncertainty. D) certainty, uncertainty and risk.

D. certainty, uncertainty and risk.

#58 look at paragraph and chart Under which criterion is Seattle University the optimal decision? A) maximax B) maximin C) minimax regret D) equally likely

D. equally likely

A conditional probability is the probability that two events will occur simultaneously.

False

A decision tree is a diagram consisting of circular decision nodes, square probability nodes, and branches

False

A posterior probability is the likelihood that an event has occurred after the decision maker has reached a decision

False

The Hurwicz criterion is a compromise between the minimax and minimin criteria.

False

The Hurwicz criterion multiplies the worst payoff by the coefficient of optimism

False

The equal likelihood criterion assigns a probability of 0.5 to each state of nature.

False

The expected value of perfect information divided by the expected value of sample information is the efficiency of perfect information

False

The ________ is a compromise between the maximax and the maximin criterion.

Hurwicz criterion

________ is the difference between the payoff from the best decision and all other decision payoffs.

Regret

A dominant decision is one that has a better payoff than another decision under each state of nature.

True

A payoff table is a means of organizing a decision situation, including the payoffs from different decisions given the various states of nature.

True

A state of nature is an actual event that may occur in the future.

True

Additional information is used to alter the marginal probability of occurrence of an event in Bayesian analysis.

True

Events are mutually exclusive if one, and only one, can occur at a time

True

Expected opportunity loss is the expected value of the regret for each decision.

True

Regret and opportunity loss mean the same thing

True

Regret is the difference between the payoff from the best decision and all other decision payoffs

True

The Hurwicz criterion is a compromise between the maximax and maximin criteria.

True

The Hurwicz criterion multiplies the best payoff by the coefficient of optimism.

True

The appropriate criterion is dependent on the risk personality and philosophy of the decision maker.

True

The coefficient of optimism is a measure of the decision maker's optimism.

True

The maximax criterion is optimistic.

True

The maximax criterion results in the maximum of the maximum payoffs.

True

The minimax regret criterion minimizes the maximum regret

True

When using decision trees, branches with the greatest expected value are selected.

True

A(n) ________ structures decisions with a series of nodes.

decision tree

A(n) ________ decision is one that has a better payoff than another decision under each state of nature

dominant

The ________ of sample information is the ratio of the expected value of sample information to the expected value of perfect information

efficiency

When the ________ criterion is used, the maximum of the maximum payoffs is selected.

maximax

When the ________ criterion is used, the maximum of the minimum payoffs is selected

maximin

When the ________ criterion is used, the decision maker selects the decision alternative that minimizes the maximum regret.

minimax regret

If only one of three events can occur at any given time, the events are ________.

mutually exclusive

If the decision maker receives additional information such that the marginal probabilities of certain events should be modified, these revised probabilities are called ________.

posterior probabilities

People who forgo a high expected value to avoid a disaster with a low probability are ________.

risk averters -or- risk averse

A(n) ________ decision tree illustrates a situation requiring a series of decisions.

sequential

The efficiency of sample information is the ratio of the expected value of sample information to ________.

the expected value of perfect information

) The efficiency of sample information multiplied by the expected value of perfect information is ________.

the expected value of sample information