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. 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)
maximaxminimax 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.
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 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
Question 9. 9. A pessimistic decision making criterion is
(Points : 4)
maximax.maximin.
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.
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
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
Question 14. 14. A risk avoider is a person for whom the utility of an outcome
(Points : 4)
decreases as the monetary value increases.increases at an increasing rate as the 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)
optimisticminimax 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
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
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 theory. decision analysis.
Question 19. 19. Another name for a decision table is a ________. (Points : 4)
payment table
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 1Alternative 3 Do Nothing
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
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 False
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August 14th, 2017 
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