Chapter 3 Decision Analysis

51) The following is a payoff table giving profits for various situations.

The probabilities for states of nature A, B, and C are 0.3, 0.5, and 0.2, respectively. If a perfect forecast of the future were available, what is the expected value with this perfect information?

A) 130

B) 160

C) 166

D) 36

E) None of the above

52) The following is a payoff table giving profits for various situations.

The probabilities for states of nature A, B, and C are 0.3, 0.5, and 0.2, respectively. If a perfect forecast of the future were available, what is the expected value of perfect information (EVPI)?

A) 166

B) 0

C) 36

D) 40

E) None of the above

53) 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.

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?

A) Open 1

B) Open 2

C) Good market

D) Fair market

E) Do nothing

54) 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.

Nick believes there is a 40 percent chance that the market will be good, a 30 percent chance that it will be fair, and a 30 percent chance that it will be poor. A market research firm will analyze market conditions and will provide a perfect forecast (they provide a money back guarantee). What is the most that should be paid for this forecast?

A) $ 44,000

B) $ 53,000

C) $123,000

D) $176,000

E) $132,000

55) Which of the following is the fourth step of the "Six Steps in Decision Making"?

A) Select one of the mathematical decision theory models.

B) List the possible alternatives.

C) Apply the model and make your decision.

D) List the payoff or profit of each combination of alternatives and outcomes.

E) Identify the possible outcomes or states of nature.

56) Which of the following is not one of the steps considered in the "Six Steps in Decision Making"?

A) Clearly define the problem at hand.

B) List the possible alternatives.

C) Apply the model and make your decision.

D) List the payoff or profit of each combination of alternatives and outcomes.

E) Evaluate the success of the decision.

57) Optimistic decision makers tend to

A) magnify favorable outcomes.

B) ignore bad outcomes.

C) discount favorable outcomes.

D) A and B

E) B and C

58) Pessimistic decision makers tend to

A) magnify favorable outcomes.

B) ignore bad outcomes.

C) discount favorable outcomes.

D) A and B

E) B and C

59) In decision theory, we call the payoffs resulting from each possible combination of alternatives and outcomes

A) marginal values.

B) conditional values.

C) conditional probabilities.

D) Bayesian values.

E) joint values.

60) Another name for a decision table is a

A) payment table.

B) payout table.

C) payoff table.

D) pay-up table.

E) decision