Exam 19: Decision Making

SCENARIO 19-1 The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature. States A1 A2 A3 1 12 -2 8 2 4 10 5 where: $\quad S 1$ is state of nature 1 $\quad$$A 1$ is action alternative 1 $\quad$$\quad$$\quad$$S 2$ is state of nature 2 $\quad$$A 2$ is action alternative 2 $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$A 3$ is action alternative 3 -Referring to Scenario 19-1, if the probability of S1 is 0.5, then the return to risk ratio for A3 is

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 0.4 are the probabilities for the sale of 100, 200, or 400 dozen roses, Respectively, then the optimal EMV for buying roses is

SCENARIO 19-5 The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Action }$ Event A B 1 1000 1200 2 500 700 3 300 -200 Suppose that the probability of Event 1 is 0.2, Event 2 is 0.5, and Event 3 is 0.3. -Referring to Scenario 19-5, what is the optimal action using the coefficient of variation?

SCENARIO 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. 16 hours 8 hours 4 hours Easy Exam 40 60 80 Difficult Exam 100 50 0 -Referring to Scenario 19-6, the optimal strategy using the expected monetary value criterion is to study 8 hours per week on average for the exam.

SCENARIO 19-5 The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Action }$ Event A B 1 1000 1200 2 500 700 3 300 -200 Suppose that the probability of Event 1 is 0.2, Event 2 is 0.5, and Event 3 is 0.3. -Referring to Scenario 19-5, what is the EMV for Action A?

SCENARIO 19-1 The following payoff table shows profits associated with a set of 3 alternatives under 2 possible states of nature. States A1 A2 A3 1 12 -2 8 2 4 10 5 where: $\quad S 1$ is state of nature 1 $\quad$$A 1$ is action alternative 1 $\quad$$\quad$$\quad$$S 2$ is state of nature 2 $\quad$$A 2$ is action alternative 2 $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$A 3$ is action alternative 3 -Referring to Scenario 19-1, if the probability of S1 is 0.5, what is the optimal alternative using EMV?

SCENARIO 19-2 The following payoff matrix is given in dollars. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Action }$ Event A B 1 400 700 2 200 500 Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Scenario 19-2, what is the action with the preferable coefficient of variation?

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 outcomes in this decision-making Problem.

Look at the utility function graphed below and select the type of decision-maker that corresponds to the graph.

The curve represents the expected monetary value approach.

SCENARIO 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. 16 hours 8 hours 4 hours Easy Exam 40 60 80 Difficult Exam 100 50 0 -Referring to Scenario 19-6, the optimal strategy using the maximin criterion is to study 8 hours per week on average for the exam.

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. The opportunity loss for buying 200 dozen roses and selling 100 dozen roses at the full price is

SCENARIO 19-2 The following payoff matrix is given in dollars. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Action }$ Event A B 1 400 700 2 200 500 Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Scenario 19-2, the expected profit under certainty (EPUC ) is

SCENARIO 19-2 The following payoff matrix is given in dollars. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { Action }$ Event A B 1 400 700 2 200 500 Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5. -Referring to Scenario 19-2, the EMV for Action A is

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. The payoff for buying 200 dozen roses and selling 100 dozen roses at the full price is

SCENARIO 19-5 The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Action }$ Event A B 1 1000 1200 2 500 700 3 300 -200 Suppose that the probability of Event 1 is 0.2, Event 2 is 0.5, and Event 3 is 0.3. -Referring to Scenario 19-5, what is the optimal action using maximin criterion?

SCENARIO 19-5 The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Action }$ Event A B 1 1000 1200 2 500 700 3 300 -200 Suppose that the probability of Event 1 is 0.2, Event 2 is 0.5, and Event 3 is 0.3. -Referring to Scenario 19-5, what is the optimal action using EOL?

SCENARIO 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. 16 hours 8 hours 4 hours Easy Exam 40 60 80 Difficult Exam 100 50 0 -Referring to Scenario 19-6, what is the expected value of perfect information?

SCENARIO 19-5 The following payoff table shows profits associated with a set of 2 alternatives under 3 possible events. $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Action }$ Event A B 1 1000 1200 2 500 700 3 300 -200 Suppose that the probability of Event 1 is 0.2, Event 2 is 0.5, and Event 3 is 0.3. -Referring to Scenario 19-5, what is the optimal action using maximax criterion?

SCENARIO 19-4 A stock portfolio has the following returns under the market conditions listed below. Bull 0.4 \ 200 Stable 0.3 \ 100 Bear 0.3 -\ 100 -Referring to Scenario 19-4, what is the return to risk ratio?