BA 212

Suppose there are three possible economic conditions, S1, S2, and S3, the three states of nature are mutually exclusive and collectively exhaustive, if P(S1)=0.5, P(S2)=0.15, then P(S3) is

0.35

Using the decision tree, and given that P(D1) = 0.4, what is P(D2)?

0.6

What is the expected value at node 1?

10 million

What is the expected value at node 2?

10 million

Brit wants to sell throw blankets for the holiday season at a local flea market. Brit purchases the throws for $40, and sells them to his customers for $55. Assume there is no leftover value for unsold units. The payoff, if he orders 100 and demand is 99, is ______.

1445

Hemmingway, Inc. is considering a $5 million research and development (R&D) project. Profit projections appear promising, but Hemmingway's president is concerned because the probability that the R&D project will be successful is only 0.50. Furthermore, the president knows that even if the project is successful, it will require that the company build a new production facility at a cost of $20 million in order to manufacture the product. If the facility is built, uncertainty remains about the demand and thus uncertainty about the profit that will be realized. Another option is that if the R&D project is successful, the company could sell the rights to the product for an estimated $25 million. Under this option, the company would not build the $20 million production facility. The decision tree follows. The profit projection for each outcome is shown at the end of the branches. For example, the revenue projection for the high demand outcome is $59 million. However, the cost of the R&D project ($5 million) and the cost of the production facility ($20 million) show the profit of this outcome to be $59-$5-$20 = $34 million. Branch probabilities are also shown for the chance events. What is the expected value at node 4?

25 million

Using the decision tree, what is the expected value for Alternative A5?

3

A group of investors wants to open up a jewelry store in a new shopping center. The investors are trying to decide whether to stock the store with inexpensive jewelry, medium-priced jewelry, or expensive jewelry. The probability of their choice depends upon the economic conditions: prosperity or recession. How many decision alternatives are presented in this situation?

3 - inexpensive jewelry, medium-priced jewelry, or expensive jewelry

What must the selling price be for the company to consider selling the rights to the product?

30 million or more

The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature. If the probability of S1 is 0.5, then the expected value approach for X is

8

When Zappos offers new employees $1,000 to leave the company, they are using the concept of:

A tripwire

Which of the following is a decision trap?

All of the above

One way to get past the potential hurt feelings when someone's idea is not chosen in a decision setting is to use ______________ during the process.

Bargaining or compromise

Which of the following is an example of loss aversion?

Buying a warranty on a consumer electronics purchase

Suppose we are interested in investing in one of three investment opportunities: d1, d2, or d3. The following profit payoff table shows the profits (in thousands of dollars) under each of the 3 possible economic conditions: s1, s2, and s3. Assume the states of nature have the following probabilities: P(s1) = 0.2, P(s2) = 0.3, P(s3) = 0.5. Which decision alternative is best?

D1

When you look at the reviews on TripAdvisor for a particular hotel you are considering, you are:

Engaging an outside view

When a retail senior executive from the main office spends a few days working out in its retail store outlets, that executive is practicing:

Going to the genba

Why did the rock group Van Halen have a contract clause requiring NO brown M&Ms in the dressing room?

If brown M&Ms were present, it meant the music venue had not read their contract

What value does a tripwire bring to a decision process?

It outlines circumstances for reconsidering a preferred decision choice

If you are not sure what your core priorities are, you can:

Look at your calendar, texts and emails

According to the authors, when you have three different options for what to do on Saturday night, you can _____________ to help make your choice.

Multitrack

An example of "bookending" a decision is:

Planning for both failure at the low end and success at the high end

One way to overcome short-term emotion is to:

Put some distance between you and your decision before deciding

If you ask yourself what you would tell your best friend to do in a situation, you are:

Shifting perspective on your decision

What does a "realistic job preview" do for a job applicant?

Shows the applicant both the good and bad aspects of the job before taking the position

What is the company's optimal decision strategy?

Start the R&D project. If it is successful, build the facility.

When someone says, "We've always done it this way," they are exhibiting

Status-quo bias

If you are uncertain about which major to choose in college, you could ooch the decision by:

Take an unpaid internship to work in the field before deciding

Which of the following is an example of "ooching?"

Taking a summer job in an accounting firm to see if you want to become an accountant

What mistake did the Quaker Board of Directors make when approving the purchase of Snapple?

They assumed the brand would be as successful as its Gatorade purchase

What did Minnetonka do right when considering its SoftSoap product's effect on the market?

They did ooched and did a "preparade" to be sure they could manage a wildly successful new product introduction

Scenario: You are assigned to work on a group project for a class. You've had bad experiences before on such projects and are dreading the experience. What can you do to improve the odds of a good experience this time around?

Use prospective hindsight to analyze what could go wrong before it actually does, and then adapt your approach

Which of the following questions might you ask to provide better insight into the task of buying a new iPhone?

What percentage of these iPhones have had warranty recalls?

Which of the following is NOT a strategy for fighting confirmation bias?

all

Which of the following is a risk of NOT setting a tripwire for decisions?

all

A payoff table shows payoffs for the combination of

all decision alternatives and all states of nature.

When we bargain in the process of making a group decision, we increase the odds of achieving:

buy in

When family and friends praise your athletic talent, musical ability, or writing skills, they could be feeding your:

confirmation bias

The ________________ is an approach to choosing a decision alternative based on the expected value of each decision alternative. The recommended decision alternative is the one that provides the best expected value.

expected value approach

According to the authors of Decisive, it is not possible to train intuition.

false

Cultural differences do not usually affect organizational communication styles or decision processes.

false

Executives who weigh more options make slower decisions in a given scenario.

false

Ooching works best in situations that require commitment to a course of action for the long-term.

false

The numerical value of a probability can be greater than one.

false

Using the WRAP process as outlined in the book will guarantee that you make the best choice for all future decisions.

false

When making a decision, the "inside view" is more accurate than the "outside view."

false

When organizations and their employees share the same core priorities, emotion gets removed from decisions.

false

When someone has invested a lot of time or effort into making a decision, their confirmation bias usually:

goes up

When we ask ourselves whether we should take a job offer or not, we are exercising:

narrow framing

When you widen your options, you reduce your chances of experiencing:

narrow framing

A good decision would always lead to

none of the above

When we put some distance into our decision process, we are essentially reducing the influence of

our own emotions

When we "zoom out" in a decision situation, we are taking a(n) _____________view of the choice facing us.

outside

Which of the four villains of decision making cost the Beatles a recording contract?

over confidence

Psychology researchers have discovered that the more we are exposed to a concept or idea, the more likely we are to:

think favorably about it

"Opportunity cost" is the term used to describe what we give up when we make a decision.

true

A good decision is an action we take that is logically consistent with the alternatives we perceive, the information we have, and the preferences we feel.

true

According to psychologists, distance in decision-making can result in clarity.

true

Deadlines are a type of tripwire.

true

Even if our ideas are not chosen in a decision-making situation, we will feel better about it if procedural justice was carried out.

true

Having a solid decision making process can result in greater confidence in the decisions we make.

true

One benefit of using the 10/10/10 approach is that it ensures short-term emotion isn't the only voice you listen to in making decisions.

true

One way to break the "logjam" on a tough decision is to loop back on the WRAP process to discover new options or information.

true

One way to determine whether you are living your core priorities is to ask whether what you are doing in that moment is what you need to be doing.

true

Prospective hindsight helps us see the future as a range of possible outcomes.

true

Researchers Hayward and Hambrick found that hubris can lead an organization to overpay for an acquisition.

true

Sometimes, our decisions are "values" decisions and not data-driven decisions.

true

When a company adopts a "wait and see" attitude towards making its decisions, it is failing to set a tripwaire.

true

When we set boundaries for our actions, we are imposing partitions on the situation that can snap us out of autopilot mode.

true

When you "ladder up" in decision-making, you may see more options but may also have to take a leap of imagination since the situations further up are not quite the same as the one you are facing.

true

When you are asked to "use your judgment" in a decision scenario, you need to make sure your judgments are correct and consistent.

true

Which of the following is NOT a villain of decision making?

wide framing

When you consider what else your money could buy BEFORE making a decision, you are:

widening your options

The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature. If the probability of S1 is 0.5, what is the optimal alternative using the expected value approach?

x