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
False