Exam 22: Decision Analysis

Gross Profits The following payoff table shows gross profits (in $1000)associated with a set of 3 acts under 2 possible states of nature. ​ ​ -{Gross Profits Narrative} If the probability of s₁ is 0.5,then the expected opportunity loss (EOL)for a₃ is ____________________.

The expected monetary value decision is always the same as the expected opportunity loss decision.

Car Audio Store For a car audio store,a payoff table,the prior probabilities for two states of nature,and the likelihood probabilities are shown below: Payoff Table: ​ ​ -{Car Audio Store Narrative} Use the posterior probabilities for I₁ in the previous question to recalculate the expected monetary value of each act,then determine the optimal act and the EMV^*.

To calculate expected profit under certainty,we need to have perfect information about which event will occur.

Gross Profits The following payoff table shows gross profits (in $1000)associated with a set of 3 acts under 2 possible states of nature. ​ ​ -{Gross Profits Narrative} The opportunity loss for a₃ when s₂ occurs is________________.

Maintenance Company For a maintenance company,a payoff table,the prior probabilities for three states of nature,and the likelihood probabilities are shown below: Payoff Table: Prior Probabilities: P(s₁)= 0.4,P(s₂)= 0.5,and P(s₃)= 0.1. Likelihood Probabilities: ​ ​ -{Maintenance Company Narrative} Use the posterior probabilities for I₃ in the previous question to recalculate the expected monetary value of each act,then determine the optimal act and the EMV^*.

Maintenance Company For a maintenance company,a payoff table,the prior probabilities for three states of nature,and the likelihood probabilities are shown below: Payoff Table: Prior Probabilities: P(s₁)= 0.4,P(s₂)= 0.5,and P(s₃)= 0.1. Likelihood Probabilities: ​ ​ -{Maintenance Company Narrative} What is the expected value of perfect information?

We calculate the expected payoff with perfect information (EPPI)by multiplying the probability of each state of nature by the smallest payoff associated with that state of nature,and then summing the products.

Custom Home Designs Three different designs are being considered for new custom homes,and profits will depend on the combination of the custom home design and market condition.The following payoff table summarizes the decision situation,with amounts in millions of dollars. Assume that the following probabilities are assigned to the three market conditions: P(s₁)= 0.1,P(s₂)= 0.6,and P(s₃)= 0.3. ​ ​ -{Custom Home Designs Narrative} What is the most the firm would be willing to pay for a research study designed to reduce its uncertainty about market conditions?

If EOL(a₁)= $13,000,EOL(a₂)= $25,000,and EOL(a₃)= $20,000,then EOL^* = $13,000.

In making decisions,we choose the decision with the largest expected monetary value,or the smallest expected opportunity loss.

A tabular presentation that shows the outcome for each decision alternative under the various states of nature is called a:

Maintenance Company For a maintenance company,a payoff table,the prior probabilities for three states of nature,and the likelihood probabilities are shown below: Payoff Table: Prior Probabilities: P(s₁)= 0.4,P(s₂)= 0.5,and P(s₃)= 0.1. Likelihood Probabilities: ​ ​ -{Maintenance Company Narrative} Use your answers to the previous questions to calculate the expected monetary value with additional information.

Gross Profits The following payoff table shows gross profits (in $1000)associated with a set of 3 acts under 2 possible states of nature. ​ ​ -{Gross Profits Narrative} If the probability of s₁ is 0.5,then the expected opportunity loss (EOL)for a₁ is ____________________.

The objective of a preposterior analysis is to determine whether the value of the prediction is greater or less than the cost of the information.

____________________ statistics specifies that parameters are variables that can assume various probability distributions.

Hobby Shop A payoff table and the prior probabilities for two states of nature for a Hobby Shop are shown below: Payoff Table: Prior Probabilities: P(s₁)= 0.4,and P(s₂)= 0.6. ​ ​ -{Hobby Shop Narrative} Set up the opportunity loss table.

Hobby Shop A payoff table and the prior probabilities for two states of nature for a Hobby Shop are shown below: Payoff Table: Prior Probabilities: P(s₁)= 0.4,and P(s₂)= 0.6. ​ ​ -{Hobby Shop Narrative} Determine the EOL decision.

Maintenance Company For a maintenance company,a payoff table,the prior probabilities for three states of nature,and the likelihood probabilities are shown below: Payoff Table: Prior Probabilities: P(s₁)= 0.4,P(s₂)= 0.5,and P(s₃)= 0.1. Likelihood Probabilities: ​ ​ -{Maintenance Company Narrative} Use the posterior probabilities for I₁ in the previous question to recalculate the expected monetary value of each act,then determine the optimal act and the EMV^*.

The expected payoff with perfect information (EPPI)represents the maximum amount a decision maker would be willing to pay for perfect information.