ch 14 decision analysis

The decision rule that selects the alternative associated with the largest payoff is:

. Maximax.

Suppose the highest payoff decision for a given state of nature is 100. You made a decision with a payoff of 80. The regret (or opportunity loss) for your decision is:

20.

A table that summarizes the final outcome (or payoff) for each decision alternative under each possible state of nature is referred to as:

A payoff matrix.

The ______ in a decision problem represent various factors that are important to the decision maker.

Criteria.

The goal of decision analysis is to:

Help individuals make good decisions.

The decision rule that pessimistically assumes that nature will always be "against us" regardless of the decision we make is:

Maximin.

Suppose that you have an option to hire a consultant who has the ability to predict the future with 100 percent accuracy. Using the consultant's reliable recommendations, you found that the expected value with perfect information is equal to $200. Without the consultant's insights you determined the EMV to be equal to $175. Would you pay the consultant $30 for her service? Why or why not?

No, because EVPI is $25, which is less than the consultant's fee of $30.

The decision rules that assume that probabilities of occurrence are not known or cannot be assigned to the states of nature in a decision problem are referred to as:

Nonprobabilistic rules.

We can apply a process known as ______ to a decision tree to determine the decision with the largest EMV.

Rolling back.

Your company decided to build a manufacturing plant in Georgia in anticipation of increased demand for the product it produces. The level of demand in this problem is a(n):

State of nature.

Tornado charts in Analytic Solver Platform (ASP) help identify:

The inputs that have the greatest impact on the EMV.

Under probabilistic decision rules:

The states of nature in a decision problem can be assigned probabilities of occurrence.

The decision tree is:

a. A graphical presentation of the information available in the payoff table. b. Intuitive to use. c. Easy to use for multi-stage decisions.

The expected monetary value (EMV) and expected opportunity loss (EOL) decision rules:

a. Always result in the selection of the same decision alternative.

A course of action intended to solve a problem is called:

a. An alternative

A strategy table:

a. Is a sensitivity analysis technique. b. Allows a decision maker to analyze optimal decision strategy changes. c. Allows two simultaneous changes in probability estimates.

Future events that are not under the decision maker's control are known as:

a. States of nature.

Suppose that, for a given decision alternative, the payoffs are (10, 20, 30) with respective probabilities of (0.2, 0.3 and 0.5). The expected payoff for this alternative is:

b. 23.

The first step in using the minimax regret decision rule is:

c. Converting the payoff matrix into a regret matrix.