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Exam 9: Decision Analysis

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Question 21

Multiple Choice

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The maximin criterion refers to:

A) minimizing the maximum return
B) maximizing the minimum return
C) choosing the alternative with the highest payoff
D) choosing the alternative with the minimum payoff
E) None of the above

F) A) and B)
G) A) and E)

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Question 22

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Using Bayes' decision rule will always lead to larger payoffs

A) True
B) False

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Question 23

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Two professors at a nearby university want to co-author a new textbook in either economics or statistics.They feel that if they write an economics book they have a 50% chance of placing it with a major publisher where it should ultimately sell about 40,000 copies.If they can't get a major publisher to take it,then they feel they have an 80% chance of placing it with a smaller publisher,with sales of 30,000 copies.On the other hand if they write a statistics book,they feel they have a 40% chance of placing it with a major publisher,and it should result in ultimate sales of about 50,000 copies.If they can't get a major publisher to take it,they feel they have a 50% chance of placing it with a smaller publisher,with ultimate sales of 35,000 copies. -What is the probability that the statistics book would wind up being placed with a smaller publisher?

Two professors at a nearby university want to co-author a new textbook in either economics or statistics.They feel that if they write an economics book they have a 50% chance of placing it with a major publisher where it should ultimately sell about 40,000 copies.If they can't get a major publisher to take it,then they feel they have an 80% chance of placing it with a smaller publisher,with sales of 30,000 copies.On the other hand if they write a statistics book,they feel they have a 40% chance of placing it with a major publisher,and it should result in ultimate sales of about 50,000 copies.If they can't get a major publisher to take it,they feel they have a 50% chance of placing it with a smaller publisher,with ultimate sales of 35,000 copies. -What is the probability that the economics book would wind up being placed with a smaller publisher?

The EVPI indicates an upper limit in the amount a decision-maker should be willing to spend to obtain information

The maximum likelihood criterion says to focus on the largest payoff

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 Bayes' decision rule,which size bus will he decide to purchase?

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

The construction manager for ABC Construction must decide whether to build single family homes,apartments,or condominiums.he estimates annual profits (in $000) will vary with the population trend as follows: -If he uses Bayes' decision rule,which kind of dwellings will he decide to build?

Two people who face the same problem and use the same decision-making methodology must always arrive at the same decision

A risk seeker has a decreasing marginal utility for money

The expected value of perfect information is:

States of nature are alternatives available to a decision maker

What is the expected annual profit for the bus that he will decide to purchase using Bayes' decision rule?

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 not done,what is the expected payoff using Bayes' decision rule?

A posterior probability is a revised probability of a state of nature after doing a test or survey to refine the prior probability

-The maximin strategy is:

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 joint probability that the state of nature is S2 and the research predicts S2?

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

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?