BDAT - Module 2 - Chapter 3

Expected monetary value (EMV) is A) the average or expected monetary outcome of a decision if it can be repeated a large number of times. B) the average or expected value of the decision, if you know what would happen ahead of time. C) the average or expected value of information if it were completely accurate. D) the amount you would lose by not picking the best alternative.

A) the average or expected monetary outcome of a decision if it can be repeated by a large number of times

In decision making under ________, there are several possible outcomes for each alternative, and the decision maker does not know the probabilities of the various outcomes. A) risk B) utility C) certainty D) uncertainty

D) uncertainty

A decision maker is assigning equal probabilities to all states of nature in a decision making under uncertainty situation but is uncomfortable doing so. Therefore, this is actually a decision making under risk situation

True

A decision table is sometimes called a payout table.

True

A utility curve that shows utility increasing at an increasing rate as the monetary value increases represents the utility curve of a risk seeker

True

Any problem that can be presented in a decision table can also be graphically portrayed in a decision tree

True

By studying a person's Utility Curve, one can determine whether the individual is a risk seeker, risk avoider, or is indifferent to risk.

True

Expected monetary value (EMV) is the average or expected monetary outcome of a decision if it can be repeated a large number of times.

True

In a decision table, all of the alternatives are listed down the left side of the table, while all of the possible outcomes or states of nature are listed across the top.

True

Sensitivity analysis assumes no increasing or decreasing economies of scale.

True

The assignment of a utility value of 1 to an alternative implies that the alternative is preferred to all others

True

The decision theory processes of maximizing expected monetary value (EMV) and minimizing expected opportunity loss (EOL) should lead us to choose the same alternatives.

True

Utility theory may help the decision maker include the impact of qualitative factors that are difficult to include in the EMV model.

True

Utility theory provides a decision criterion that is superior to the EMV or EOL in that it may allow the decision maker to incorporate her own attitudes toward risk

True

The optimistic decision criterion is the criterion of A) maximax. B) maximin. C) realism. D) equally likely

A) maximax

Which of the following is not considered a criterion for decision making under uncertainty? A) optimistic B) pessimistic C) equally likely D) random selection

D) random selection

The Hurwicz criterion is also called the criterion of A) regret. B) equality. C) optimism. D) realism.

D) realism

In decision making under ________, there are several possible outcomes for each alternative, and the decision maker knows the probability of occurrence of each outcome. A) risk B) utility C) certainty D) probability

A) risk

Optimistic decision makers tend to A) magnify favorable outcomes. B) ignore bad outcomes. C) discount favorable outcomes. D) A and B

D) A and B

Which of the following is not one of the steps considered in the "Six Steps in Decision Making"? A) Clearly define the problem at hand. B) List the possible alternatives. C) Apply the model and make your decision. D) Evaluate the success of the decision.

D) Evaluate the success of the decision

The three decision-making environments are decision making under A) utility, risk, and certainty. B) utility, risk, and uncertainty. C) utility, certainty, and uncertainty. D) risk, certainty, and uncertainty

D) risk, certainty, and uncertainty

Which of the following is the fourth step of the "Six Steps in Decision Making"? A) Select one of the mathematical decision theory models. B) List the possible alternatives. C) Apply the model and make your decision. D) List the payoff or profit of each combination of alternatives and outcomes

D) List the payoff or profit of each combination of alternatives and outcomes

Which of the following is not a characteristic of a good decision? A) based on logic B) considers all available data C) employs appropriate quantitative techniques D) always results in a favorable outcome

D) always results in a favorable outcome

How are decision tables organized? A) alternatives down the left, states of nature on top, payoffs inside B) states of nature down the left, alternatives on top, payoffs inside C) alternatives down the left, payoffs on top, states of nature inside D) payoffs down the left, alternatives on top, states of nature inside

A) alternatives down the left, states of nature on top, payoffs inside

The expected value of sample information (EVSI) can be used to A) establish a maximum amount to spend on additional information. B) calculate conditional probabilities. C) establish risk avoidance. D) provide points on a utility curve

A) establish a maximum amount to spend on additional information

In decision theory, we call the payoffs resulting from each possible combination of alternatives and outcomes A) marginal values. B) conditional values. C) conditional probabilities. D) Bayesian values.

B) conditional values

Which of the following is true about the expected value of perfect information? A) It is the amount you would pay for any sample study. B) It is calculated as EMV minus EOL. C) It is calculated as expected value with perfect information minus maximum EMV. D) It is the amount charged for marketing research.

C) It is calculated as expected value with perfect information minus maximum EMV

The equally likely criterion is also called the ________ criterion. A) Hurwicz B) uncertainty C) Laplace D) LaFlore

C) Laplace

What makes the difference between good decisions and bad decisions? A) A good decision is based on logic. B) A good decision considers all available data. C) A good decision considers all alternatives. D) A good decision applies quantitative approaches

C) a good decision considers all alternatives

A decision analyst began to sketch this decision tree at 8:30 this morning and now is just returning from her lunch break (she had the blue plate special and highly recommends it). If she resumes work on the decision tree at the point on the tree labeled 4, what is least likely to go there? A) a positive payoff B) a decision node C) a state of nature node D) a negative payoff

C) a state of nature node

An analytic and systematic approach to the study of decision making is referred to as A) decision making under risk. B) decision making under uncertainty. C) decision theory. D) decision analysis.

C) decision theory

Pessimistic decision makers tend to A) magnify favorable outcomes. B) ignore bad outcomes. C) discount favorable outcomes. D) A and B

C) discount favorable outcomes

A pessimistic decision-making criterion is A) maximax. B) equally likely. C) maximin. D) decision making under certainty

C) maximin

Another name for a decision table is a A) payment table. B) payout table. C) payoff table. D) pay-up table.

C) payoff table

A second table (an opportunity loss table) must be computed when applying the maximin decision criterion

False

A utility curve that shows utility increasing at a decreasing rate as the monetary value increases represents the utility curve of a risk seeker.

False

All decisions that result in a favorable outcome are considered to be good decisions.

False

Any problem that can be represented in a decision tree can be easily portrayed in a decision table.

False

EOL will always result in the same decision as the maximum EMV with revenue data, but will pick the worst alternative with cost data.

False

EVPI (expected value of perfect information) provides the decision maker a value of the lowest amount she should be willing to pay for additional information

False

Expected monetary value (EMV) is the payoff you should expect to occur when you choose a particular alternative.

False

In a decision problem where we wish to use Bayes' theorem to calculate posterior probabilities, we should always begin our analysis with the assumption that all states of nature are equally likely, and use the sample information to revise these probabilities to more realistic values.

False

Optimistic decision makers tend to discount favorable outcomes.

False

The EMV approach and Utility theory always result in the same choice of alternatives.

False

The Laplace criterion represents a compromise between the maximax and maximin decisions.

False

The decision maker can control states of nature

False

The decision making criterion of realism only applies to maximizing expected payoff.

False

The difference in decision making under uncertainty and decision making under certainty is that under uncertainty, we think we know the probabilities of the states of nature, while under certainty we know exactly the probabilities of the states of nature.

False

The maximax decision criterion is used by pessimistic decision makers and maximizes the maximum outcome for every alternative

False

The maximin decision criterion is used by pessimistic decision makers and minimizes the maximum outcome for every alternative.

False

The maximum value in a regret table constructed from a decision table populated with cost data corresponds to the optimal alternative

False

The several criteria (maximax, maximin, equally likely, criterion of realism, minimax regret) used for decision making under uncertainty cannot lead the choice of the same alternative.

False

Utility values typically range from -1 to +1.

False