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Exam 9: Decision Analysis

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Question 41

True/False

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Using Bayes' decision rule will always lead to larger payoffs.

A) True
B) False

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Question 42

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What is the expected payoff for the optimum decision alternative?

A) 50,000 copies.
B) 40,000 copies.
C) 32,000 copies.
D) 30,500 copies.
E) 10,500 copies.

F) A) and E)
G) A) and D)

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Question 43

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Testing how a problem solution reacts to changes in one or more of the model parameters is called:

Figure There is an option of paying $100 to have research done to better predict which state of nature will occur.When the true state of nature is S1,the research will accurately predict S1 60% of the time.When the true state of nature is S2,the research will accurately predict S2 80% of the time. -Given that the research is done,what is the expected payoff using Bayes' decision rule?

Figure -The maximin strategy is:

A utility function for money can be constructed by applying a lottery procedure.

A event node in a decision tree indicates that a decision needs to be made at that point.

Bayes' theorem is a formula for determining prior probabilities of a state of nature.

Figure There is an option of paying $100 to have research done to better predict which state of nature will occur.When the true state of nature is S1,the research will accurately predict S1 60% of the time.When the true state of nature is S2,the research will accurately predict S2 80% of the time. -What is the unconditional probability that the research predicts S1?

Figure -The Bayes' decision rule strategy is:

In decision analysis,states of nature refer to possible future conditions.

Most people occupy a middle ground and are classified as risk neutral.

Payoff tables may include only non-negative numbers.

The exponential utility function assumes a constant aversion to risk.

Figure There is an option of paying $100 to have research done to better predict which state of nature will occur.When the true state of nature is S1,the research will accurately predict S1 60% of the time.When the true state of nature is S2,the research will accurately predict S2 80% of the time. -What is the unconditional probability that the research predicts S2?

Figure The operations manager for a local bus company wants to decide whether he should purchase a small,medium,or large new bus for his company.He estimates that the annual profits (in $000) will vary depending upon whether passenger demand is low,moderate,or high,as follows. -If he uses the maximum likelihood criterion,which size bus will he decide to purchase?

The maximin criterion is an optimistic criterion.