1.
The decision
theory processes of maximizing expected monetary value (EMV) and
minimizing expected opportunity loss (EOL) should lead us to choose the
same alternatives.

(Points : 4)

True
False

Question 2.
2.
A utility curve showing utility increasing at an increasing rate as the monetary value increases represents
(Points : 4)

a risk avoider.
utility assessment.
a risk seeker.
conditional values.
expected utilities.

Question 3.
3.
Any problem that can be presented in a decision table can also be graphically portrayed in a decision tree.

(Points : 4)

True
False

Question 4.
4.
The optimistic decision criterion is the criterion of ________.
(Points : 4)

maximax
maximin
realism
equally likely
minimax regret

Question 5.
5.
To determine the effect of input changes on decision results, we should perform a sensitivity analysis.

(Points : 4)

True
False

Question 6.
6.
A rational decision
maker must choose between two alternatives. Alternative 1 has a higher
EMV than Alternative 2, but the decision maker chooses Alternative 2.
What might explain why this occurs?
(Points : 4)

Alternative 2 may have a higher expected utility.
Alternative 1 may have a lower expected opportunity loss.
The probabilities are not known.
A rational decision maker could not possibly choose alternative 2.
None of the above

Question 7.
7.
Consider the following payoff table.

STATE OF

NATURE

ALTERNATIVES

A

B

Alternative 1

100

150

Alternative 2

200

100

Probability

0.4

0.6

The alternative that provides the greatest expected monetary value (EMV) is
(Points : 4)

Alternative 1 with EMV of 130
Alternative 1 with EMV of 140
Alternative 2 with EMV of 130
Alternative 2 with EMV of 140
None of the above

Question 8.
8.
Nick has plans to open
some pizza restaurants, but he is not sure how many to open. He has
prepared a payoff table to help analyze the situation.

STATE

OF

NATURE

ALTERNATIVES

GOOD MARKET

FAIR MARKET

POOR MARKET

Open 1

380,000

70,000

-400,000

Open 2

200,000

80,000

-200,000

Do Nothing

0

0

0

As
Nick does not know how his product will be received, he assumes that
all three states of nature are equally likely to occur. If he uses the
equally likely criterion, what decision would he make?
(Points : 4)

Open 1
Open 2
Good market
Fair market
Do nothing

Question 9.
9.
A pessimistic decision making criterion is
(Points : 4)

maximax.
equally likely.
maximin.
decision making under certainty.
minimax regret.

Question 10.
10.
Expected monetary value (EMV) is
(Points : 4)

the average or expected monetary outcome of a decision if it can be repeated a large number of times.
the average or expected value of the decision, if you know what would happen ahead of time.
the average or expected value of information if it were completely accurate.
the amount you would lose by not picking the best alternative.
a decision criterion that places an equal weight on all states of nature.

Question 11.
11.
In decision making under
________, there are several possible outcomes for each alternative, and
the decision maker does not know the probabilities of the various
outcomes.
(Points : 4)

risk
utility
certainty
probability
uncertainty

Question 12.
12.
The maximax decision criterion is used by pessimistic decision makers and maximizes the maximum outcome for every alternative.

(Points : 4)

True
False

Question 13.
13.
The following is an opportunity-loss table.

STATE

OF

NATURE

ALTERNATIVES

A

B

C

Alternative 1

20

100

0

Alternative 2

100

0

25

Alternative 3

0

40

90

The probabilities for the states of
nature A, B, and C are 0.3, 0.5, and 0.2, respectively. If a person
were to use the expected opportunity loss criterion, what decision would
be made?

(Points : 4)

Alternative 1
Alternative 2
Alternative 3
State of Nature C
State of Nature B

Question 14.
14.
A risk avoider is a person for whom the utility of an outcome
(Points : 4)

decreases as the monetary value increases.
stays the same as monetary value increases.
increases at an increasing rate as the monetary value increases.
increases at a decreasing rate as monetary value increases.
None of the above

Question 15.
15.
Which of the following is not considered a criteria for decision making under uncertainty?
(Points : 4)

optimistic
pessimistic
equally likely
random selection
minimax regret

Question 16.
16.
Consider the following payoff table.

STATE OF

NATURE

ALTERNATIVES

A

B

Alternative 1

100

150

Alternative 2

200

100

Probability

0.4

0.6

How much should be paid for a perfect forecast of the state of nature (EVPI)?
(Points : 4)

170
30
10
100
40

Question 17.
17.
The following is a payoff table giving profits for various situations.

STATE

OF

NATURE

A

B

C

Alternative 1

120

140

120

Alternative 2

200

100

50

Alternative 3

100

120

180

Do Nothing

0

0

0

What decision would a pessimist make?
(Points : 4)

Alternative 1
Alternative 2
Alternative 3
Do Nothing
State of Nature A

Question 18.
18.
An analytic and systematic approach to the study of decision making is referred to as
(Points : 4)

decision making under risk.
decision making under uncertainty.
decision theory.
decision analysis.
decision making under certainty.

Question 19.
19.
Another name for a decision table is a ________.
(Points : 4)

payment table
payout table
payoff table
pay-up table
decision tree

Question 20.
20.
The EMV approach and Utility theory always result in the same choice of alternatives.

(Points : 4)

True
False

Question 21.
21.
The decision
theory processes of maximizing expected monetary value (EMV) and
minimizing expected opportunity loss (EOL) should lead us to choose the
same alternatives.

(Points : 4)

True
False

Question 22.
22.
The
difference in decision making under risk and decision making under
uncertainty is that under risk, we think we know the probabilities of
the states of nature, while under uncertainty we do not know the
probabilities of the states of nature.

(Points : 4)

True
False

Question 23.
23.
The following is a payoff table giving profits for various situations.

STATE

OF

NATURE

A

B

C

Alternative 1

120

140

120

Alternative 2

200

100

50

Alternative 3

100

120

180

Do Nothing

0

0

0

What decision would an optimist make?
(Points : 4)

Alternative 1
Alternative 2
Alternative 3
Do Nothing
State of Nature A

Question 24.
24.
The following is an opportunity loss table.

STATE

OF

NATURE

A

B

C

Alternative 1

30

0

10

Alternative 2

5

20

0

Alternative 3

0

20

25

What decision should be made based on the minimax regret criterion?

(Points : 4)

Alternative 1
Alternative 2
Alternative 3
State of Nature C
Does not matter

Question 25.
25.
The several
criteria (maximax, maximin, equally likely, criterion of realism,
minimax regret) used for decision making under uncertainty may lead to
the choice of different alternatives.

(Points : 4)

True
FalseThe decision
theory processes of maximizing expected monetary value (EMV) and
minimizing expected opportunity loss (EOL) should lead us to choose the
same alternatives.A utility curve showing utility increasing at an increasing rate as the monetary value increases representsutility assessment.a risk seeker.conditional values.Any problem that can be presented in a decision table can also be graphically portrayed in a decision tree.The optimistic decision criterion is the criterion of ________.maximaxmaximinrealismequally likelyTo determine the effect of input changes on decision results, we should perform a sensitivity analysis.A rational decision
maker must choose between two alternatives. Alternative 1 has a higher
EMV than Alternative 2, but the decision maker chooses Alternative 2.
What might explain why this occurs?Alternative 2 may have a higher expected utility.Alternative 1 may have a lower expected opportunity loss.The probabilities are not known.A rational decision maker could not possibly choose alternative 2.None of the aboveConsider the following payoff table.STATE OFNATUREALTERNATIVESABAlternative 1100150Alternative 2200100Probability0.40.6The alternative that provides the greatest expected monetary value (EMV) isAlternative 2 with EMV of 140Nick has plans to open
some pizza restaurants, but he is not sure how many to open. He has
prepared a payoff table to help analyze the situation.STATEOFNATUREALTERNATIVESGOOD MARKETFAIR MARKETPOOR MARKETOpen 1380,00070,000-400,000Open 2200,00080,000-200,000Do Nothing000As
Nick does not know how his product will be received, he assumes that
all three states of nature are equally likely to occur. If he uses the
equally likely criterion, what decision would he make?Do nothingA pessimistic decision making criterion ismaximax.equally likely.decision making under certainty.minimax regret.the average or expected monetary outcome of a decision if it can be repeated a large number of times.the average or expected value of the decision, if you know what would happen ahead of time.the average or expected value of information if it were completely accurate.the amount you would lose by not picking the best alternative.a decision criterion that places an equal weight on all states of nature.In decision making under
________, there are several possible outcomes for each alternative, and
the decision maker does not know the probabilities of the various
outcomes.riskutilitycertaintyprobabilityuncertaintyThe maximax decision criterion is used by pessimistic decision makers and maximizes the maximum outcome for every alternative.The following is an opportunity-loss table.STATEOFNATUREALTERNATIVESABCAlternative 1201000Alternative 2100025Alternative 304090The probabilities for the states of
nature A, B, and C are 0.3, 0.5, and 0.2, respectively. If a person
were to use the expected opportunity loss criterion, what decision would
be made?Alternative 2Alternative 3State of Nature CState of Nature BA risk avoider is a person for whom the utility of an outcomedecreases as the monetary value increases.stays the same as monetary value increases.increases at a decreasing rate as monetary value increases.Which of the following is not considered a criteria for decision making under uncertainty?optimisticpessimisticequally likelyrandom selectionConsider the following payoff table.STATE OFNATUREALTERNATIVESABAlternative 1100150Alternative 2200100Probability0.40.6How much should be paid for a perfect forecast of the state of nature (EVPI)?170301010040The following is a payoff table giving profits for various situations.STATEOFNATUREABCAlternative 1120140120Alternative 220010050Alternative 3100120180Do Nothing000What decision would a pessimist make?Alternative 1Alternative 2Alternative 3Do NothingState of Nature AAn analytic and systematic approach to the study of decision making is referred to asdecision making under risk.decision making under uncertainty.decision making under certainty.payment tablepayout tablepayoff tablepay-up tabledecision treeThe EMV approach and Utility theory always result in the same choice of alternatives.The decision
theory processes of maximizing expected monetary value (EMV) and
minimizing expected opportunity loss (EOL) should lead us to choose the
same alternatives.The
difference in decision making under risk and decision making under
uncertainty is that under risk, we think we know the probabilities of
the states of nature, while under uncertainty we do not know the
probabilities of the states of nature.The following is a payoff table giving profits for various situations.STATEOFNATUREABCAlternative 1120140120Alternative 220010050Alternative 3100120180Do Nothing000 What decision would an optimist make?Alternative 1Alternative 2State of Nature AThe following is an opportunity loss table.STATEOFNATUREABCAlternative 130010Alternative 25200Alternative 302025What decision should be made based on the minimax regret criterion?Alternative 1Alternative 2Alternative 3State of Nature CDoes not matterThe several
criteria (maximax, maximin, equally likely, criterion of realism,
minimax regret) used for decision making under uncertainty may lead to
the choice of different alternatives.