Question 1

If sample information is obtained, the result of the sample information will be either positive or negative. No matter which result occurs, the choice to select option A or option B exists. And no matter which option is chosen, the eventual outcome will be good or poor. Complete the table.

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Question 2

Fold back this decision tree. Clearly state the decision strategy you determine.
​

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Question 3

How can a good decision maker "improve" luck?

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The answer of How can a good decision maker "improve"...

Question 4

Why perform sensitivity analysis? Of what use is sensitivity analysis where good probability estimates are difficult to obtain?

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Question 5

​Explain the relationship between expected utility, probability, payoff, and utility.

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Question 6

​Explain how utility could be used in a decision where performance is not measured by monetary value.

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Question 7

​Explain why the decision maker might feel uncomfortable with the expected value approach, and decide to use a non-probabilistic approach even when probabilities are available.

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Question 8

​Characterize each of the non-probabilistic approaches to decision making (i.e. - minimin, minimax, maximin, and maximax) in terms of it relating to a minimization or maximization problem and whether it is a pessimistic or optimistic approach.

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Question 9

​Draw the utility curves for three types of decision makers, label carefully, and explain the concepts of increasing and decreasing marginal returns for money.

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Question 10

A chemical company is trying to decide whether to build a pilot plant now for a new chemical process or to build the full plant now. If they build a pilot plant now, they could expand it later to a full plant or license the plant to another company. It would cost them $2 million to build the pilot plant and another $2 million later to expand it. If they build the full plant now it would cost $3.5 million to construct.
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The returns they expect to get from the full production plant depend upon the market. They estimate there is a 60% chance the market will be robust, a 30% chance it will remain stable, and a 10% chance it will become stagnate. The returns are estimated to be $5 million if it is robust, $3 million if it is stable, and $1 million if it is stagnate.
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Before they expand the pilot plant, they plan to conduct a comprehensive study. Based on past experience, they expect the study to report a 60% chance of favorable outcome for expansion and a 40% unfavorable chance. In either case they will have to decide whether to expand to a full plant or license the pilot plant. If the report is favorable and they license it, they expect to get $3 million. However, if the report is unfavorable and they license it, they will only get $1 million.
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Develop a decision tree for this problem and determine the optimal decision strategy.

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Question 11

Use a diagram to compare EVwPI, EVwoPI, EVPI, EVwSI, EVwoSI, and EVSI.

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Question 12

​Give two examples of situations where you have decided on a course of action that did not have the highest expected monetary value.

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Question 13

Show how you would design a spreadsheet to calculate revised probabilities for two states of nature and two indicators.

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Question 14

Three decision makers have assessed utilities for the problem whose payoff table appears below.
​  ​  ​ 
a.Plot the utility function for each decision maker.
b.Characterize each decision maker's attitude toward risk.
c.Which decision will each person prefer?​

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Question 15

Use graphical sensitivity analysis to determine the range of values of the probability of state of nature s₁ over which each of the decision alternatives has its largest expected value.

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Question 16

Dollar Department Stores has received an offer from Harris Diamonds to purchase Dollar's store on Grove Street for $120,000. Dollar has determined probability estimates of the store's future profitability, based on economic outcomes, as: P($80,000) = .2, P($100,000) = .3, P($120,000) = .1, and P($140,000) = .4. a.Should Dollar sell the store on Grove Street? b.What is the EVPI? c.Dollar can have an economic forecast performed, costing $10,000, that produces indicators I₁ and I₂, for which P(I₁ | 80,000) = .1; P(I₁ | 100,000) = .2; P(I₁ | 120,000) = .6; P(I₁ | 140,000) = .3. Should Dollar purchase the forecast?

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Question 17

​When and why should a utility approach be followed?

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Quiz 13: Decision Analysis

If sample information is obtained, the result of the sample information will be either positive or negative. No matter which result occurs, the choice to select option A or option B exists. And no matter which option is chosen, the eventual outcome will be good or poor. Complete the table.

Fold back this decision tree. Clearly state the decision strategy you determine.

How can a good decision maker "improve" luck?

Why perform sensitivity analysis? Of what use is sensitivity analysis where good probability estimates are difficult to obtain?

Explain the relationship between expected utility, probability, payoff, and utility.

Explain how utility could be used in a decision where performance is not measured by monetary value.

Explain why the decision maker might feel uncomfortable with the expected value approach, and decide to use a non-probabilistic approach even when probabilities are available.

Characterize each of the non-probabilistic approaches to decision making (i.e. - minimin, minimax, maximin, and maximax) in terms of it relating to a minimization or maximization problem and whether it is a pessimistic or optimistic approach.

Draw the utility curves for three types of decision makers, label carefully, and explain the concepts of increasing and decreasing marginal returns for money.

Use a diagram to compare EVwPI, EVwoPI, EVPI, EVwSI, EVwoSI, and EVSI.

Give two examples of situations where you have decided on a course of action that did not have the highest expected monetary value.

Show how you would design a spreadsheet to calculate revised probabilities for two states of nature and two indicators.

Three decision makers have assessed utilities for the problem whose payoff table appears below. a.Plot the utility function for each decision maker. b.Characterize each decision maker's attitude toward risk. c.Which decision will each person prefer?

Use graphical sensitivity analysis to determine the range of values of the probability of state of nature s₁ over which each of the decision alternatives has its largest expected value.

When and why should a utility approach be followed?

Quiz 13: Decision Analysis

If sample information is obtained, the result of the sample information will be either positive or negative. No matter which result occurs, the choice to select option A or option B exists. And no matter which option is chosen, the eventual outcome will be good or poor. Complete the table.

Fold back this decision tree. Clearly state the decision strategy you determine. ​

How can a good decision maker "improve" luck?

Why perform sensitivity analysis? Of what use is sensitivity analysis where good probability estimates are difficult to obtain?

​Explain the relationship between expected utility, probability, payoff, and utility.

​Explain how utility could be used in a decision where performance is not measured by monetary value.

​Explain why the decision maker might feel uncomfortable with the expected value approach, and decide to use a non-probabilistic approach even when probabilities are available.

​Characterize each of the non-probabilistic approaches to decision making (i.e. - minimin, minimax, maximin, and maximax) in terms of it relating to a minimization or maximization problem and whether it is a pessimistic or optimistic approach.

​Draw the utility curves for three types of decision makers, label carefully, and explain the concepts of increasing and decreasing marginal returns for money.

Use a diagram to compare EVwPI, EVwoPI, EVPI, EVwSI, EVwoSI, and EVSI.

​Give two examples of situations where you have decided on a course of action that did not have the highest expected monetary value.

Show how you would design a spreadsheet to calculate revised probabilities for two states of nature and two indicators.

Three decision makers have assessed utilities for the problem whose payoff table appears below. ​ ​ ​ a.Plot the utility function for each decision maker. b.Characterize each decision maker's attitude toward risk. c.Which decision will each person prefer?​

Use graphical sensitivity analysis to determine the range of values of the probability of state of nature s1 over which each of the decision alternatives has its largest expected value.

​When and why should a utility approach be followed?

Fold back this decision tree. Clearly state the decision strategy you determine.

Explain the relationship between expected utility, probability, payoff, and utility.

Explain how utility could be used in a decision where performance is not measured by monetary value.

Explain why the decision maker might feel uncomfortable with the expected value approach, and decide to use a non-probabilistic approach even when probabilities are available.

Characterize each of the non-probabilistic approaches to decision making (i.e. - minimin, minimax, maximin, and maximax) in terms of it relating to a minimization or maximization problem and whether it is a pessimistic or optimistic approach.

Draw the utility curves for three types of decision makers, label carefully, and explain the concepts of increasing and decreasing marginal returns for money.

Give two examples of situations where you have decided on a course of action that did not have the highest expected monetary value.

Three decision makers have assessed utilities for the problem whose payoff table appears below. a.Plot the utility function for each decision maker. b.Characterize each decision maker's attitude toward risk. c.Which decision will each person prefer?

Use graphical sensitivity analysis to determine the range of values of the probability of state of nature s₁ over which each of the decision alternatives has its largest expected value.

When and why should a utility approach be followed?