Exam 14: Decision Analysis

Probabilistic decision rules can be used if the states of nature in a decision problem can be assigned probabilities that represent their likelihood of occurrence. Which of the following is not true regarding the probabilities employed?

An investor is considering 4 investments, A, B, C, D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following decision tree has been developed for the problem. The investor has estimated the probability of a declining economy at 40% and an expanding economy at 60%. -Refer to Exhibit 14.5. What is the expected monetary value for the investor's problem?

A square node in a decision tree is called a(n) ____ node.

-Refer to Exhibit 14.4. What is the expected value with perfect information for the investor?

A student wants to buy a new car. She has three cars to choose from, A, B and C. The cars differ with respect to price, performance and looks. The student has developed the following AHP tables for price and summary. The other tables are not shown due to space limitations. -Refer to Exhibit 14.13. Which car should the student choose based on the Summary worksheet?

The amount of opportunity lost in making a decision is called

The following questions are based on the information below. An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the investment decision problem. -Refer to Exhibit 14.9. Assume the formula =MIN(B5:C5) was entered in cell D5 and copied to cells D6:D8. What formula should go in cell E5 and get copied to cells E6:E8 to place a "<==" to indicate the choice according to the maximin decision rule?

An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. -Refer to Exhibit 14.2. What formula should go in cell F5 of the Regret Matrix above to compute the regret value?

A circular node in a decision tree is called a(n) ____ node.

The ____ correspond to future events that are not under the control of the decision maker.

The following questions are based on the information below. An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the investment decision problem. -Refer to Exhibit 14.9. What formula should go in cell D5 and get copied to D6:D8 to implement the maximax decision rule?

An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. -Refer to Exhibit 14.1. What decision should be made according to the minimax regret decision rule?

A decision maker is faced with two alternatives. The decision maker has determined that she is indifferent between the two alternatives when p = 0.7. -Refer to Exhibit 14.12. What is the decision maker's certainty equivalent for this problem?

Although modeling provides valuable insight to decision makers, decision making remains a difficult task. Which of the following is not a primary cause for this difficulty discussed in the Decision Analysis chapter?

A fast food restaurant is considering opening a new store at one of four locations. They have developed the following multi-criteria scoring model for this problem. What location should they choose based on this information?

A convenience store chain is considering opening a new store at one of four locations. They have developed the following multi-criteria scoring model for this problem. Complete the table for this problem. What location should they choose based on this information?

Based on the radar chart of the weighted scores provided below, which of the following interpretations is incorrect?

A course of action intended to solve a problem is called a(n)

Which of the following is a goal of decision analysis?

An investor is considering 4 investments, A, B, C, D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can be weak or strong. The investor has estimated the probability of a declining economy at 30% and an expanding economy at 70%. Draw the decision tree for this problem and determine the correct decision for this investor based on the expected monetary value criteria.