RMI2302 Exam 1

State governments mostly commonly generate revenue through 1. state income taxes 2. sales taxes 3. property taxes

1 and 2

The government stabilizes the economy by balancing 1. unemployment 2. inflation

1 and 2

Which of the following statements regarding measuring risk is/are correct? 1. an individual's risk varies with habits 2. time element measurement ignores some information 3. time element measures a specific moment in time

1 and 2

Who urged politicians to design policies that would maximize people's happiness? a. Bentham b. Schwartz c. Diener D. Kahneman

Bentham

Tom is faced with a situation in which he must make a decision. Which of the following best describes the ORDER of the steps of the decision making process Tom should use to come to a decision?

Identify the outcomes, identify the courses of action, determine the pay-off function, and then choose from the alternatives.

Risk reduction methods are best applied to? a. high severity losses b. high frequency losses c. both A and B

high severity losses

Which of the following describes a certainty equivalent best? a. how much are you willing to sacrifice from your certain amount to avoid a gamble b. how much are you willing to invest from your certain amount to succeed in a gamble c. how much are you willing to gamble based on the amount of wealth you own d. how certain you are that you will win the outcome of a bet

how much are you willing to sacrifice from your certain amount to avoid a gamble

One of the public policy concerns associated with risk reduction in the reading "A Scientific View of Risk" is estimating the cost and benefits of risk reduction. For many risks, such as highway safety estimating the cost and benefits of risk reduction include: a. the impact of pollution b. the political consequence of freedom restriction c. putting a value on human life d. putting a value on household pets

putting a value on human life

What is the main criticism of the mainstream media by risk professionals regarding risk? a. the media is too focused on "fad" movements which takes away consideration from harmful risk b. the public often ends up underestimating common risks and exaggerating low risks c. mainstream media depicts harmful actions which encourages continued use d. the mainstream only reports "bad" news which makes people overly cautious

the public often ends up underestimating common risks and exaggerating low risks

All the following statements about the utility function are true except: a. the function for the risk-neutral decision maker is always linear b. the utility function for money is always upward sloping c. different kinds of decision makers will have different slopes d. the utility function reflects objective attitudes about risk

the utility function reflects objective attitudes about risk

Opportunity cost is best defined as a. the understanding that making an error contains an inherent cost b. the understanding that one must risk to receive a reward c. the value of all that must be sacrificed in order to benefit d. the considerable evidence needed to make a decision

the value of all that must be sacrificed in order to benefit

The LaPlace principle: a treats uncertain events as equally probable. b. always adopts a strategy with the highest mean c. is used when there is complete certainty about all events d. uses expected mena when dealing with costs

treats uncertain events as equally probable.

Risk at the individual level can be defined as ________ a. uncertainty regarding profits b. certainty regarding outcomes c. certainty regarding losses d. uncertainty regarding losses

uncertainty regarding losses

Chapter 2 discussed mortality. Since the 1980s, in the United States, the leading cause of death among those 1-44 is? a. heart disease b. COVID 19 c. HIV d. Unintentional injury

unintentional injury

As the operations manager for American Airlines you have decided to invest in 10 new jets for the company's fleet. There are three outcomes for this investment. What is the expected return on investment using the information below? Outcome Probability Return 1. .50 .15 2. .30 .25 3. .20 .10

0.17

A large international beverage conglomerate is considering purchasing a small micro-brewery located in Virginia that has become popular with tourists. An analysis of the operation has determined three likely outcomes for this acquisition. Based on the info below what is the expected return? Outcome Probability Return 1. .25 .20 2. .40 .30 3. .35 .05

0.19

As the manager of High Speed Records, you have signed a new artist to the label. There are three different outcomes for investing in the artist. What is the expected return on investment using the information below? Outcome Probability Return 1. .35 .20 2. .25 .36 3. .40 .10

0.20

Factors to consider when selecting criteria for decision rules include 1. The decision maker's attitude 2. The nature of the situation

1 and 2

Marginal cost and benefit calculations 1. Measure activity incrementally 2. Are useful in determining the level at which activity stops 3. Are sometimes referred to as average cost and benefits

1 and 2

Production Costs inflicted upon a third party are negative externalities. These can be correct by: 1. Enacting legislation or regulation 2. Targeting specific products for taxation

1 and 2

Post Loss objectives for an organization include: 1. continuity of operations 2. reduction in anxiety 3. social responsibility

1 and 3

According to Von Neumann and Morgenstern Utility index, decisions are made to maximize... 1. expected utility 2. expected monetary value 3. expected marginal loss

1 only

Expected value: 1. is one the best method for making decisions currently available for organizations 2. is seldom used only by organizations

1 only

According to 2020 statistics, which of the following is more likely to lead to death than being an airline passenger: 1. motorcycle riding 2. alcohol poisioning 3. dog bite

1, 2, 3

What are some non-monetary costs of attempting to eliminate risks? 1. loss of life 2. loss of productivity 3. loss of time

1, 2, 3

The Utility Index is proposed by Von Nuemann and Morgenstern 1. is designed for predictive purposes 2. enables decision making based on preferences 3. measures utility in situations where risk exists

1, 2, and 3

In 1941 households paid approximately 3% of their income in federal income taxes. In the 2000's, this percentage has grown to almost: a. 50% b. 35% c. 25% d. 15%

15%

The following statements regarding Utility Functions is/are true: 1. Utility functions are usually a function of wages. 2. Utility increases at a decreasing rate. 3. The utility function chosen does not matter. They will all yield the same result.

2 only

Think about the following statement. "Innovations to make us feel safer often lead to us changing our habits because we feel safer, thereby increasing risk." Which of the following is an example of the statement? A. angie rides her bike to school everyday. she always wears her helmet and looks twice before crossing the road. she hit a rock in the road and crashed her bike. b. tom has just purchased a brand new, top of the line jet ski. He and his friends are planning to visit the lake to see how many time they can flip the jet ski this afternoon. c. Kyle's mother just bought a new, red convertible. Kyle can't wait to go take it for a test drive to see how fast it will go. d. Erin just paid ADT to install an alarm system in her house. Now, she can finally stop worrying about locking her doors at night.

Erin just paid ADT to install an alarm system in her house. Now, she can finally stop worrying about locking her doors at night.

Chapter 2 has a different definition of risk than we have used in class. The definition used in this reading added what component to the definition? a. a time element b. government involvement c. uncertainty d. adverse outcomes

a time element

Which scenario below has the LEAST amount of risk? a. a window washer falls at the 68th floor b. an intoxicated college student falls down one flight of stairs c. a person driving on i 10 while not wearing a seat belt d. all have equal risk

a window washer falls at the 68th floor

How can positive externalities be corrected? a. subsidizing consumers b. subsidizing suppliers c. allowing the government to provide goods d. all of the above

all of the above

Risk associated with self driving cars include: a. false sense of security b. programming errors c. lack of regulation d. all of the above

all of the above

which of the following needs to be recognized in the cost/benefit method of decision making? a. opportunity costs b. sunk costs c. marginal costs/benefits d. all of the above

all of the above

Which of the following does NOT describe a method of income disposal? a. personal savings b. personal taxes c. personal consumption expenditures d. all of the above describe methods of income disposal

all of the above describe methods of income disposal

Most of the risks that are faced by individuals and organizations? a. are both dynamic and static b. are static c. all increase over time d. are dynamic

are dynamic

Which of the following are examples of issues that may arise that models may predict? a. blue ducks b. black swans c. purple horseshoes d. white swans

black swans

Which of the following methods best identifies all the risk faced by an organization? a. checklists b. questionnaires c. procedure guides d. combination of all of the above

combination of all the above

A pay-off is a ______ value in the sense that associated with each course of action is a certain profit/loss. a. conditional b. variable c. future d. alternative

conditional

Limited liability and ease of expansion are advantages to which of the following? a. sole proprietorships b. partnerships c. corporations

corporations

Nyce Vineyards is evaluating the impact of climate change on its several types of grapes grown. There are several alternatives for planting multiple varietals that will ultimately determine their success. In order to select between the alternatives to find the optimal choice, Nyce Vineyards should use: a. national weather service long range forecast models b. decision theory c. farmer's almanac

decision theory

Which of the following determines optimal strategies when a decision maker is faced with several different alternatives and a risky pattern of future events? a. uncertainty theory b. decision theory c. economic theory d. likelihood theory

decision theory

The decisions situations wherein the decision-maker chooses to consider several possible outcomes and the probabilities of their occurrence can be stated are called _________. a. decisions under maximum probability b. decisions based on expectation c. decisions under likelihood d. decisions under risk

decisions under risk

According to the textbook, which of the following is NOT one of the four steps of managing innovation risks? a. determine which risks are being faced b. recognize that the model has limitations c. pay attention to your environment d. create and use a model

determine which risks are being faced

Most of the public's view of risk is _______ than risk experts. a. less important b. more irrational c. different d. less important

different

Static risks are _____ a. are not measurable b. do not change over time c. are never insurable d. refer to loses associated with lightning storms

do not change over time

______ represents the largest spending of local revenues. a. education b. infrastructure c. public safety d. affordable housing

education

Which of the following is not a step in the risk management process? a. identification of risks b. consideration of alternatives c. determination of objectives d. Implementation e. Elimination of risk

elimination of risk

"risk management is fundamentally a question of values. In a democratic society, there is no acceptable way to make these choices without involving the citizens who will be affected by them." What does this statement mean? a. society concerns regarding risk matter more than personal concerns regarding risk in a democratic society b. media bias have a large impact on citizens in democratic nations c. everyone possibly affected by risk should have a say in the reduction or response to a risk d. individuals personalize risks that will impact them directly whereas government care only about large-scale risks

everyone possibly affected by risk should have a say in the reduction or response to a risk

The _______ ________ states that the optimal strategy to choose will be the one with the highest expected payoff. a. Maximin or minimax principle b. maximax or minimin principle c. Laplace principle d. expectation principle

expectation principle

An incurred cost that cannot be recovered, which is irrelevant for all decisions about the future, is included in the projected cost of a project. According to "Thinking Like an Economist," this an example of: a. ignoring implicit costs b. failing to ignore sunk costs c. considering opportunity costs d. conservative economic theory

failing to ignore sunk costs

The Florida Lottery has done extensive research on the individuals who purchase their products. They have determined that their customers have a square root utility function and an initial wealth of $100. It costs $19 to purchase a lottery ticket and each ticket has a 50/50 chance of being worth $39. True or False, customers will purchase these lottery tickets.

false

Loss severity describes which of the following? a. number of losses b. financial impact of losses c. reputational damage of losses d. none of the above

financial impact of losses

John is a handyman who only accepts cash and never reports any income. He uses the highways to drive his work van to customers' homes. John is a: a. Anarchist b. Free-rider c. Philanthropist d. None of the above

free-rider

Risks affecting a large portion of the population at a given time are which of the following? a. particular risks b. core risks c. hazard risks d. fundamental risks

fundamental risks

Redistributing income, providing a structure and promoting stability are a. government roles b. individual roles c. organization roles

government roles

According to Mill, the goal of moral and political actions should be to maximize people's: a. income b. happiness c. freedom d. time

happiness

Which of the following correctly identifies the cost-benefit approach to decision-making? a. if the cost of undertaking an activity exceeds the benefit, undertake the activity b. the costlier the activity, the greater the benefit opportunites c. weighing cost and benefits of decisions is useless d. if the benefit of undertaking an activity exceeds its cost, undertake that activity

if the benefit of undertaking an activity exceeds its cost, undertake that activity

In chapter 2, the section on recognizing model limitations, all models are _________; some models are _________. a. complete; correct b. incomplete; complete c. incorrect; incomplete d. incomplete; incorrect

incomplete; incorrect

Greg and Emily were tasked with developing a model of how an individual may purchase lottery tickets. Greg's model for determining ticket purchases incorrectly assumes all people are equally likely to play the lottery. Emily's model correctly assumed that lottery ticket purchases vary with income and education levels and found very different results than Greg's model. Which of the following describes Greg's model? a. inefficient b. dated c. incorrect d. incomplete

incorrect

In the lecture, we applied some of the concepts of the managing innovation risk to self-drive cars. Which of the following was NOT one of the rewards discussed with self-drive cars? a. increased driver error b. reduced health care costs c. reduced congestion d. time savings

increased drive error

Innovations typically happen quicker than a. infrastructure changes b. dental changes c. medical changes d. technology changes

infrastructure changes

A restaurant owner has a net profit of $125,000. She has the choice of taking this amount as salary for herself or investing all of it in another location that has recently become available. There is a 50% chance the second location will have a net gain of $200,000 from investment, and a 50% chance it will loose $75,000 ($50,000 left). Assuming she has a square root utility function, what should she do? a. take the 125,000 salary for herself b. invest in new location c. outcomes are the same

invest in the new location

Joe has $5000. He has an opportunity to invest in a new smart phone app being designed by a friend. He would invest $2500 for this project, keeping $2500 in reserve. He has a 50/50 chance of earning $6000 above the initial investment amount or losing the entire amount invested due to a failure to sell. Assuming he has a square root utility function, Joe should: a. Keep his money for other opportunities b. Invest in the project. c. There is no difference in the outcomes.

invest in the project

Google, Inc. has three potential investment opportunities following the release of their driverless car prototype. Which of the following should they pursue? Investment A Probability / Outcome .55 / 20% .20 / 10% .25 / -5% Investment B Probability / Outcome .60 / 15% .30 / 12% .10 / -10% Investment C Probability / Outcome .50 / 20% .28 / 12% .22 / -3%

investment C

What is one weakness of the maximum likelihood principle. a. it overcompensates for socio-economic outcomes b. it ignores other available information, such as other possible events and their consequences c. only quantitative decisions are made by using the maximum likelihood principle d. the maximum likelihood principle focuses on objective possibilities and ignore subjective possibilities

it ignores other available information, such as other possible events and their consequences

How does the mathematical measure of standard deviation help risk managers? a. it calculates the exact outcome a project will achieve b. it measures the difference between what is expected to happen and what actually happens c. using standard deviation is not helpful to risk managers d. it can determine the expected value of a business venture

it measures the difference between what is expected to happen and what actually happens

Karen won't allow any of the neighborhood children into her yard because she has a large swimming pool and doesn't want anyone to fall in, resulting in her being responsible for the harm of a child. What type of risk is Karen trying to avoid? a. personal b. financial c. property d. liability

liability

The increase in total benefit that results from carrying out one additional unit of an activity is the a. marginal benefit b. additional benefit c. cost-decision margin d. revenue margin

marginal benefit

The ______ principle of decision-making stipulates that a decision-maker's view is usually extreme optimism. a. maximin or minimax principle b. laplace principle c. hurwicz principle d. maximax or minimin principle

maximax or minimin principle

The principle is adopted by pessimistic decision-makers who are most conservative in their approach. a. maximin or minimax principle b. LaPlace principle c. Nyce principle d. maximax or minimin principle

maximin or minimax principle

Which of the following is NOT a role of the government: a. providing legal structure b. minimizing competition c. promoting stability d. redistributing income

minimizing competition

Requirements for using a payoff matrix include all of the following except: a. there must be limited number of outcomes b. clearly determined possible outcomes and possible choices c. must result in a sequence of decisions d. the outcomes must be mutually exclusive

must result in a sequence of decisions

Molly goes to the grocery store and spends $75 on food. According to chapter 3, which of the following describes her purchase? a. durable good b. non-durable good c. service d. consumption good

non-durable good

Which of the following causes more fatalities than drunk driving: 1. speeding 2. distracted driving 3. drowsy driving

none of those cause more fatalities

The portion of household income that is NOT paid in taxes or used to purchase goods is: a. capital gains b. personal savings c. net income d. service income

personal savings

Expected utility is calculated by: a. probability of the outcome multiplied by the utility of the resulting wealth b. wealth multiplied by probability c. wealth divided by cost d. subtracting utils from sunk cost

probability of the outcome multiplied by the utility of the resulting wealth

Chapter 2 discusses government policies that affect the whole population. Dean Kilpatrick defines ________ as a "system of laws, regulatory measures, courses of action, and funding priorities concerning a given topic...." a. public policy b. public discord c. publix d. public school

public policy

Insurance is a mechanism for managing ____ a. speculatie risk b. market risk c. pure risk d. none of the above

pure risk

Sharon is given two options. Option 1 allows her to take $5. Option 2 allows her a 1/3 chance of winning $50, but she risks losing $10, 2/3 of the time. Sharon chooses option 1. What best describes Sharon? a. risk-seeking b. risk-averse c. risk-neutral d. gambling-averse

risk averse

Tom is a college student at FSU. He has the option to buy a parking pass at the beginning of the year for $250. If Tom doesn't buy the pass, he has to park on the street or pay the valet parking service $5 per day. If Tom does not buy the parking pass, he expects to have to use the valet parking services 40 times. However, he may end up using the valet service up to 80 times. Tom decides that he would rather pay the $250 than risk not being able to find a spot on the street. Tom could be described as which of the following: a. risk seeking b. risk averse c. risk conscious d. risk neutral

risk averse

Most people are said to be __________, and most organizations are said to be _______. a. risk averse; risk averse b. risk averse; risk neutral c. risk neutral; risk averse d. risk neutral; risk seeking e. risk seeking; risk seeking

risk averse; risk neutral

The scientific approach for dealing with risk is called _______ a. risk planning b. risk avoidance c. risk management d. risk reduction

risk management

One of the core concepts of risk reduction at the societal level is that: a. smoking causes cancer b. risk reduction has both monetary and nonmonetary costs c. dying young is worse than dying old d. cancer is a deadly disease

risk reduction has both monetary and nonmonetary costs

Which of the following describes the decision-maker classifications for individuals under utility theory? a. certain, uncertain and indifferent b. risk-averse, risk-seeking, and risk-neutral c. individual, corporate, adn governmental

risk-averse, risk-seeking, and risk-neutral

Which of the following are the two reasons describing why people save? a. security and speculation b. consumption and entertainment c. shelter and food d. emergencies and leisure

security and speculation

Which idea replaces an individualized version of well-being with a top-down approach. a. greatest happiness principle b. societal happiness line of thinking c. emotional adaptation d. utilitarianism

societal happiness line of thinking

Every year, Sam vacations in Las Vegas, and has a set budget of $5000 for gambling. Sam's casino wagering is an example of _______________ a. pure risk b. speculative risk c. expected value d. financial planning

speculative risk

Hazards may be categorized by which of the following groups? a. tangible and intangible b. primary and secondary c. objective and subjective

tangible and intangible

The sum of all taxes withheld from wages and salary is known as the? a. social security taxes b. personal income taxes c. tax wedge d. corporate income taxes

tax wedge

Having more information is a key tenet of: a. maximum likelihood principle b. the expectation principle c. LaPlace principle d. decision theory

the expectation principle

In the decision-making process, opportunity loss, or regret, occurs when: a. demand equals supply b. maximum profit is achieved c. a recession occurs d. the optimal course of action is not adopted

the optimal course of action is not adopted

Owners of an organization want to maximize company profits and stock prices while agents (managers) want high pay, regardless of company performance. This is referred to as: a. exchange rate problems b. agent disagreement c. the principal-agent problem d. a shortcoming of the stock market

the principal-agent problem

The claim that decisions are made to maximize expected utility rather than expected monetary value is the major component of which of the following? a. utility theory b. expectation theory c. uncertainty theory d. maximization theory

utility theory

How do most people in the US earn income? a. interest on investments b. corporate profits c. wages and salaries d. proprietors' income

wages and salaries

utility functions are normally a function of _______. Choose which of the following best fits in the blank. a. ability b. risk c. wealth d. uncertainty

wealth