Exam 19: Decision Making

TABLE 19-6 A student wanted to find out the optimal strategy to study for a Business Statistics exam.He constructed the following payoff table based on the mean amount of time he needed to study every week for the course and the degree of difficulty of the exam.From the information that he gathered from students who had taken the course,he concluded that there was a 40% probability that the exam would be easy. -Referring to Table 19-6,what is the opportunity loss of spending 16 hours per week on average studying for the exam when the exam turns out to be easy?

TABLE 19-4 A stock portfolio has the following returns under the market conditions listed below. -Referring to Table 19-4,what is the coefficient of variation?

A medical doctor is involved in a $1 million malpractice suit.He can either settle out of court for $250,000 or go to court.If he goes to court and loses,he must pay $825,000 plus $175,000 in court costs.If he wins in court the plaintiffs pay the court costs.Identify the actions of this decision-making problem.

TABLE 19-5 The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events. Suppose that the probability of Event 1 is 0.2,Event 2 is 0.5,and Event 3 is 0.3. -Referring to Table 19-5,what is the expected profit under certainty (EPUC )for this problem?

TABLE 19-2 The following payoff matrix is given in dollars. Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Table 19-2,what is the optimal action using the EOL criterion?

TABLE 19-6 A student wanted to find out the optimal strategy to study for a Business Statistics exam.He constructed the following payoff table based on the mean amount of time he needed to study every week for the course and the degree of difficulty of the exam.From the information that he gathered from students who had taken the course,he concluded that there was a 40% probability that the exam would be easy. -Referring to Table 19-6,how many possible events are there?

TABLE 19-6 A student wanted to find out the optimal strategy to study for a Business Statistics exam.He constructed the following payoff table based on the mean amount of time he needed to study every week for the course and the degree of difficulty of the exam.From the information that he gathered from students who had taken the course,he concluded that there was a 40% probability that the exam would be easy. -Referring to Table 19-6,how many possible courses of action are there?

TABLE 19-3 The following information is from 2 investment opportunities. -Referring to Table 19-3,what is the return to risk ratio for Investment B?

A company that manufactures designer jeans is contemplating whether to increase its advertising budget by $1 million for next year.If the expanded advertising campaign is successful,the company expects sales to increase by $1.6 million next year.If the advertising campaign fails,the company expects sales to increase by only $400,000 next year.If the advertising budget is not increased,the company expects sales to increase by $200,000.Identify the actions in this decision-making problem.

TABLE 19-6 A student wanted to find out the optimal strategy to study for a Business Statistics exam.He constructed the following payoff table based on the mean amount of time he needed to study every week for the course and the degree of difficulty of the exam.From the information that he gathered from students who had taken the course,he concluded that there was a 40% probability that the exam would be easy. -True or False: Referring to Table 19-6,the optimal strategy using the maximin criterion is to study 8 hours per week on average for the exam.

TABLE 19-6 A student wanted to find out the optimal strategy to study for a Business Statistics exam.He constructed the following payoff table based on the mean amount of time he needed to study every week for the course and the degree of difficulty of the exam.From the information that he gathered from students who had taken the course,he concluded that there was a 40% probability that the exam would be easy. -True or False: Referring to Table 19-6,the optimal strategy using the expected monetary value criterion is to study 8 hours per week on average for the exam.

TABLE 19-1 The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature -Blossom's Flowers purchases roses for sale for Valentine's Day.The roses are purchased for $10 a dozen and are sold for $20 a dozen.Any roses not sold on Valentine's Day can be sold for $5 per dozen.The owner will purchase 1 of 3 amounts of roses for Valentine's Day: 100,200,or 400 dozen roses.Given 0.2,0.4,and 0.6 are the probabilities for the sale of 100,200,or 400 dozen roses,respectively,then the EMV for buying 200 dozen roses is

TABLE 19-2 The following payoff matrix is given in dollars. Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Table 19-2,the EVPI is

The risk seeker's curve represents the utility of one who enjoys taking risks.Therefore,the slope of the utility curve becomes ________ for large dollar amounts.

________ is a procedure for revising probabilities based upon additional information.

TABLE 19-5 The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events. Suppose that the probability of Event 1 is 0.2,Event 2 is 0.5,and Event 3 is 0.3. -Referring to Table 19-5,what is the opportunity loss for Action A with Event 2?

A medical doctor is involved in a $1 million malpractice suit.He can either settle out of court for $250,000 or go to court.If he goes to court and loses,he must pay $825,000 plus $175,000 in court costs.If he wins in court the plaintiffs pay the court costs.Identify the outcomes of this decision-making problem.

TABLE 19-1 The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature -Referring to Table 19-1,if the probability of S1 is 0.2 and S2 is 0.8,then the expected monetary value of A1 is

TABLE 19-6 A student wanted to find out the optimal strategy to study for a Business Statistics exam.He constructed the following payoff table based on the mean amount of time he needed to study every week for the course and the degree of difficulty of the exam.From the information that he gathered from students who had taken the course,he concluded that there was a 40% probability that the exam would be easy. -Referring to Table 19-6,what is the opportunity loss of spending 8 hours per week on average studying for the exam when the exam turns out to be difficult?

True or False: Removal of uncertainty from a decision-making problem leads to a case referred to as perfect information.