Question 1

EVPI (expected value of perfect information)is a measure of the maximum EMV as a result of additional information.

Accepted Answer

EVPI represents the maximum amount that a decision maker would be willing to pay for additional information because it would eliminate all uncertainty and result in the maximum possible EMV.

Question 2

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.

Accepted Answer

Each criterion has its own method and approach for weighing options and analyzing risk, and can result in different choices being made.

Question 3

A decision table is sometimes called a payout table.

Accepted Answer

True

Question 4

The maximin decision criterion is used by pessimistic decision makers and minimizes the maximum outcome for every alternative.

Accepted Answer

The maximin decision criterion is used by pessimistic decision makers but it maximizes the minimum outcome for every alternative, not minimizes the maximum outcome.

Question 5

Expected monetary value (EMV)is the average or expected monetary outcome of a decision if it can be repeated a large number of times.

Accepted Answer

The statement accurately defines the concept of Expected Monetary Value (EMV).

Question 6

Expected monetary value (EMV)is the payoff you should expect to occur when you choose a particular alternative.

Accepted Answer

The answer of Expected monetary value (EMV)is the payoff you...

Question 7

The decision theory processes of maximizing expected monetary value (EMV)and minimizing expected opportunity loss (EOL)should lead us to choose the same alternatives.

Accepted Answer

Both maximizing EMV and minimizing EOL are approaches based on expected values and aim at maximizing the outcome. EMV looks at the potential gains while EOL looks at the potential losses. If we choose the alternative that maximizes EMV, it will also help us to minimize EOL. Therefore, both decision theory processes should lead us to choose the same alternatives.

Question 8

All decisions that result in a favorable outcome are considered to be good decisions.

Accepted Answer

Just because a decision results in a favorable outcome does not necessarily mean it was a good decision. The decision may have been made based on luck or short-term gain, without considering long-term consequences or ethical implications. A good decision is one that is made with careful consideration of all available information, potential risks and benefits, and with a clear understanding of the values and goals of the decision maker.

Question 9

In a decision table,all of the alternatives are listed down the left side of the table,while all of the possible outcomes or states of nature are listed across the top.

Accepted Answer

This statement accurately describes a decision table.

Question 10

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.

Accepted Answer

This is a commonly accepted definition of the difference between decision making under risk and decision making under uncertainty.

Question 11

Any problem that can be presented in a decision table can also be graphically portrayed in a decision tree.

Accepted Answer

Both decision tables and decision trees are used to represent different possibilities and outcomes for a particular decision. However, while decision tables use a tabular format to represent information, decision trees use a graphical format. Therefore, any problem that can be presented in a decision table can also be graphically portrayed in a decision tree.

Question 12

The decision maker can control states of nature.

Accepted Answer

States of nature are uncontrollable and uncertain events that affect the outcomes of a decision. The decision maker can only make a decision based on the likelihood of each state of nature occurring, but cannot control them.

Question 13

It is possible for an alternative to be the best among all decision criteria.

Accepted Answer

It is possible for an alternative to excel in all decision criteria, making it the best option among all alternatives.

Question 14

Optimistic decision makers tend to discount favorable outcomes.

Accepted Answer

Optimistic decision makers tend to overestimate the likelihood of favorable outcomes rather than discounting them.

Question 15

The EMV approach and Utility theory always result in the same choice of alternatives.

Accepted Answer

The EMV approach and Utility theory may not always result in the same choice of alternatives because the EMV approach only considers the expected value of each alternative, while utility theory also takes into account the individual's preferences and level of risk aversion. Therefore, an alternative with a lower expected value but higher utility may be preferred over one with a higher expected value but lower utility.

Question 16

The maximax decision criterion is used by pessimistic decision makers and maximizes the maximum outcome for every alternative.

Accepted Answer

The maximax decision criterion is actually used by optimistic decision makers and maximizes the maximum outcome for every alternative.

Question 17

Any problem that can be represented in a decision tree can be easily portrayed in a decision table.

Accepted Answer

While every problem represented in a decision table can be portrayed in a decision tree, the reverse is not true. Decision tables are better suited for problems with a large number of decisions and outcomes, while decision trees are better for problems with a small number of decisions and outcomes.

Question 18

The decision making criterion of realism only applies to maximizing expected payoff.

Accepted Answer

Realism, in decision-making, involves considering multiple factors beyond just maximizing expected payoff, including ethical considerations, practical constraints, and long-term implications.

Question 19

To determine the effect of input changes on decision results,we should perform a sensitivity analysis.

Accepted Answer

Sensitivity analysis is a technique used to determine the effect of small changes or variations in input variables on the output results of a decision model. It helps decision makers to assess the robustness of their decision in the face of uncertainty or changes in the input data by measuring how sensitive the results are to various input parameters. Therefore, performing sensitivity analysis is essential to understand the impact of input changes on decision results.

Question 20

When using the EOL as a decision criterion,the best decision is the alternative with the largest EOL value.

Accepted Answer

The best decision is the alternative with the smallest EOL (Expected Opportunity Loss) value, as it represents the least potential loss compared to other alternatives.

Quiz 3: Decision Analysis