Exam 16: Supplement A Decision Making

In decision theory, the different courses of action that a decision maker can choose are called ________.

Analyze the following decision tree. After determining the missing probabilities, identify which alternative (Option 1 or Option 2) has the higher expected payoff. What is the expected payoff?

Choosing the alternative that is the "best of the worst" using decision making under uncertainty would be:

Use the following to answer the beekeeping questions below. A math major turned hipster-beekeeper has determined that his profit is governed by the equation 5x - 40, where x represents the number of hives he sets up for the honey season. -In the hipster-beekeeper's equation, 40 represents the:

List and describe decision rules that are used for decision making under uncertainty.

A poultry farmer is debating whether to acquire Rhode Island Reds or Buff Orpingtons to lay the eggs he wants to sell. The fixed costs for the Buffs would be $7,500 and the variable costs per egg would be a dime per egg. The Reds would have a fixed cost of $6,000 and a variable cost of fifteen cents. At what level of egg production would the poultry farmer be indifferent between Rhode Island Reds and Buff Orpingtons?

The preference matrix technique can be used only with quantitative factors to consider.

A(n) ________ is the difference between a given payoff and the best payoff for a given state of nature.

In order for a decision tree to be a valuable decision tool, the decision-maker should be in a condition of:

The decision rule in decision making under uncertainty that would be best for the manager who has high expectations would be:

The decision rule ________ chooses the alternative that is the "best of the best."

Use the following information to answer the questions below. You currently make a part for old equipment at a cost of $20 / unit. The annual fixed cost for this equipment is $50,000. You have found an outside supplier who will make the part for $15 / unit if you will pay their annual fixed costs of $200,000 / year (see table). -Refer to the instruction above. What are total costs to make a quantity of 40,000 units per year?

By definition, the maximax and maximin criteria cannot result in the selection of a common alternative in decision making under uncertainty.

Table A.2 Use the following to answer the questions below. A company that is introducing a new product has to choose between four different manufacturing methods, referred to as methods A, B, C and D. Depending on the demand for the product, they forecast different levels of expenses for the year (values are in thousands). The company has identified three possible states of nature for economic growth, and named them High, Medium, and Low. -Using the information in Table A.2, which alternative is best in accordance with a decision criterion of minimax regret?

Decision trees are typically used in the situation of decision making under ________.

Fixed cost is the portion of the total cost that remains constant regardless of changes in levels of output.

Provide an example of two or more events where you as a decision maker would truly be engaged in decision making under uncertainty. Why are you incapable of deciding which event is more likely than the other(s)?

The decision rule ________ is also referred to as the optimist's criterion.

Keith Monroe is deciding among four alternatives and fleshes out the decision tree shown below. He has developed excellent estimates of payoffs but admits he has no clue about the probabilities for the two states of nature. He wants to cover all of his bases, so he would like to calculate the probability of high demand for which each alternative is superior. Analyze this situation and make recommendations for him. He promises to cut you in for 30% of the profits if you can show him how to calculate the ranges.

The decision rule ________ is also referred to as the pessimist's criterion.