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Exam 3: Decision Analysis

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Question 51

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The ABC Co.is considering a new consumer product.They believe that the XYZ Co.may come out with a competing product.If ABC adds an assembly line for the product and XYZ does not follow with a competitive product, their expected profit is $40,000; if they add an assembly line and XYZ does follow, they still expect a $10,000 profit.If ABC adds a new plant addition and XYZ does not produce a competitive product, they expect a profit of $600,000; if XYZ does compete for this market, ABC expects a loss of $100,000.For what value of probability that XYZ will offer a competing product will ABC be indifferent between the alternatives?

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Question 52

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A risk avoider is a person for whom the utility of an outcome

A) decreases as the monetary value increases.
B) stays the same as monetary value increases.
C) increases at an increasing rate as the monetary value increases.
D) increases at a decreasing rate as monetary value increases.

E) C) and D)
F) B) and C)

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Question 53

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A decision sciences professor defines the P(A) = the likelihood one of his students will be bitten by a monkey on his trip to India and P(B) = an Indian monkey carries rabies.Which of these expressions represents the likelihood that given a monkey doesn't have rabies, it will bite his student?

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

The Hurwicz criterion coefficient of realism measures the decision maker's degree of

The following is a payoff table giving costs for various situations. What decision would a pessimist make?

Suppose that the payoff from an investment depends upon market conditions.A great market has a payoff of $200,000, a normal market has a payoff of $100,000, and a poor market has a payoff of $20,000.Using an α-value of 0.3, what is the criterion of realism value?

Which of the following is not considered a criterion for decision making under uncertainty?

Before a marketing research study was done, John Colorado believed there was a 50/50 chance that his music store would be a success.The research team determined that there is a 0.9 probability that the marketing research will be favorable given a successful music store.There is also a 0.8 probability that the marketing research will be unfavorable given an unsuccessful music store. (a)If the marketing research is favorable, what is the revised probability of a successful music store? (b)If the marketing research is unfavorable, what is the revised probability of a successful music store?

Before a market survey is done, there is a 50/50 chance that a new soccer supply store would be a success.The people doing the survey have determined that there is a 0.9 probability that the survey will be favorable given a successful store.There is also a 0.75 probability that the survey will be unfavorable given an unsuccessful store.What is the probability that the survey will be unfavorable?

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.

A market research survey is available for $5,000.Using a decision tree analysis, it is found that the expected monetary value with no survey is $49,000.If the expected value of sample information is -$4,000, what is the expected monetary value with the survey?

The equally likely criterion is also called the ________ criterion.

In Bayesian analysis, conditional probabilities are also known as which of the following?

In constructing a utility curve

The following is a payoff table giving profits for various situations. If a person were to use the expected monetary value criterion, what decision would be made?

A pessimistic decision-making criterion is

Utility values typically range from

A manager is deciding whether or not to build a small facility.Demand is uncertain and can be either at a high or low level.If the manager chooses a small facility and demand is low, the payoff is $300.If the manager chooses a small facility and demand is high, the payoff is $100.On the other hand, if the manager chooses a large facility and demand is low, the payoff is -$200, but if demand is high, the payoff is $800. (a)What would be the best decision based on the maximax criterion? (b)What would be the best decision based on the maximin criterion? (c)What would be the best decision based on the minimax regret?

Briefly describe decision making under risk.