Question 1.1 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. (Points : 4) The optimistic decision criterion is the criterion of ________. Maximax Maximin Realism. equally likely minimax regret Question 5. 5 . (Points : 4) To determine the effect of input changes on decision results, we should perform a sensitivity analysis. True False Question 6. 6 . (Points : 4) 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 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 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 . (Points : 4) True False Question 13. 13 . The following is an opportunity-loss table STATE OF ALTERNATIVES A B Alternative 1 20 100 Alternative 2 100 0 Alternative 3 0 40 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 makin…
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