# Quiz 20: An Introduction to Decision Theory

Statistics

Q 1Q 1

Statistical decision theory is defined as the collection of techniques a decision maker can apply to choose the best alternative action.

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True False

True

Q 2Q 2

In decision making,if there are one or more unknown factors,then the decision is made under conditions of uncertainty.

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True False

True

Q 3Q 3

A decision maker usually has a choice among several possible alternative acts. For each alternative act,there are many possible results called states of occurrence.

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True False

False

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True False

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True False

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True False

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True False

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True False

Q 9Q 9

A way to decide which common stock to purchase is to determine the profit that might be lost because the exact state of nature (the market behavior)was not known at the time the investor bought the stock. This potential loss is called opportunity loss or regret.

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True False

Q 10Q 10

When the payoffs are profits,the maximin strategy selects the alternative or act with the maximum gain.

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True False

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True False

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True False

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True False

Q 14Q 14

If the expected value of stock purchases under conditions of certainty is $1,900 and the expected value of stock purchases under conditions of uncertainty is $1,840,then the $60 difference is called the value of perfect information.

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True False

Q 15Q 15

Sensitivity analysis examines the effects that changes in the probabilities for the states of nature have on the expected values of the alternatives or acts,and the corresponding decisions.

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True False

Q 16Q 16

What is the most optimistic of all possible maximin,maximax,and minimax regret strategies?
A)Minimax
B)Maximax
C)Maximin
D)Minimax regret

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Multiple Choice

Q 17Q 17

Which of the following is not a component of the decision-making process?
A)Alternatives
B)Payoff
C)States of nature
D)Seasonal indexes

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Multiple Choice

Q 18Q 18

Of the three components in any decision-making situation,which of the following cannot be controlled?
A)Alternatives
B)Payoff
C)States of nature
D)Seasonal indexes

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Multiple Choice

Q 19Q 19

Besides a payoff table,the information for decision analysis can be organized using a ________.
A)decision tree
B)scatter diagram
C)fishbone diagram
D)Pareto chart

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Multiple Choice

Q 20Q 20

Applying probabilities to a payoff table results in ________.
A)expected opportunity loss for each alternative or act
B)expected monetary value for each alternative or act
C)value of perfect information
D)a decision tree

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Multiple Choice

Q 21Q 21

A maximin strategy will always choose the act or alternative that ________.
A)maximizes the expected monetary value
B)minimizes the maximum regret or opportunity loss
C)maximizes the potential payoff regardless of the state of nature
D)guarantees a payoff for any state of nature

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Multiple Choice

Q 22Q 22

A minimax regret strategy will always choose the act or alternative that ________.
A)maximizes the expected monetary value
B)minimizes the maximum regret or opportunity loss
C)maximizes the potential payoff regardless of uncertainty
D)guarantees a payoff for any state of nature

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Multiple Choice

Q 23Q 23

A maximax strategy will always choose the act or alternative that ________.
A)maximizes the expected monetary value
B)minimizes the maximum regret or opportunity loss
C)maximizes the potential payoff regardless of uncertainty
D)guarantees a payoff for any state of nature

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Multiple Choice

Q 24Q 24

The expected value under conditions of uncertainty subtracted from the expected value under conditions of certainty will result in ________.
A)the value of perfect information
B)an expected opportunity loss
C)an expected monetary value
D)an expected decision strategy

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Multiple Choice

Q 25Q 25

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the payoff value for the purchase of six watermelons when the demand is for six watermelons?
A)18
B)21
C)24
D)42

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Multiple Choice

Q 26Q 26

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the payoff value for the purchase of six watermelons when the demand is for seven or more watermelons?
A)18
B)21
C)28
D)49

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Multiple Choice

Q 27Q 27

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the payoff value for the purchase of seven watermelons when the demand is for six watermelons?
A)14
B)18
C)21
D)24

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Multiple Choice

Q 28Q 28

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the payoff value for the purchase of seven watermelons when the demand is for seven or more watermelons?
A)18
B)21
C)24
D)42

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Multiple Choice

Q 29Q 29

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the payoff value for the purchase of eight watermelons when the demand is for six watermelons?
A)17
B)21
C)24
D)10

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Multiple Choice

Q 30Q 30

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the payoff value for the purchase of eight watermelons when the demand is for seven watermelons?
A)10
B)17
C)24
D)21

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Multiple Choice

Q 31Q 31

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the payoff value for the purchase of eight watermelons when the demand is for eight or more watermelons?
A)17
B)21
C)24
D)10

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Multiple Choice

Q 32Q 32

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the payoff value for the purchase of nine watermelons when the demand is for six watermelons?
A)6
B)13
C)20
D)27

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Multiple Choice

Q 33Q 33

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the payoff value for the purchase of nine watermelons when the demand is for seven watermelons?
A)6
B)13
C)20
D)27

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Multiple Choice

Q 34Q 34

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the payoff value for the purchase of nine watermelons when the demand is for eight watermelons?
A)6
B)13
C)20
D)27

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Multiple Choice

Q 35Q 35

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the payoff value for the purchase of nine watermelons when the demand is for nine watermelons?
A)6
B)13
C)20
D)27

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Multiple Choice

Q 36Q 36

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the opportunity loss for purchasing six watermelons when the demand is for six watermelons?
A)0
B)3
C)4
D)6

Free

Multiple Choice

Q 37Q 37

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the opportunity loss for purchasing eight watermelons when the demand is for eight watermelons?
A)0
B)3
C)4
D)6

Free

Multiple Choice

Q 38Q 38

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the opportunity loss for purchasing six watermelons when the demand is for eight watermelons?
A)0
B)3
C)4
D)6

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Multiple Choice

Q 39Q 39

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the opportunity loss for purchasing seven watermelons when the demand is for six watermelons?
A)0
B)3
C)4
D)6

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Multiple Choice

Q 40Q 40

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the opportunity loss for purchasing seven watermelons when the demand is for nine watermelons?
A)0
B)3
C)4
D)6

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Multiple Choice

Q 41Q 41

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the opportunity loss for purchasing eight watermelons when the demand is for nine watermelons?
A)0
B)3
C)4
D)6

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Multiple Choice

Q 42Q 42

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. What is the opportunity loss for purchasing nine watermelons when the demand is for seven watermelons?
A)0
B)4
C)8
D)12

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Multiple Choice

Q 43Q 43

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. If the merchant purchases seven watermelons,the maximum opportunity loss occurs when the demand is how many units?
A)6
B)7
C)8
D)9

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Multiple Choice

Q 44Q 44

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. If the merchant purchases eight watermelons,the minimum opportunity loss occurs when the demand is how many units?
A)6
B)7
C)8
D)9

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Multiple Choice

Q 45Q 45

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. Based on a maximax strategy,what alternative is selected?
A)Order 6
B)Order 7
C)Order 8
D)Order 9

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Multiple Choice

Q 46Q 46

The manager of Paul's fruit and vegetable store is considering the purchase of a new seedless watermelon from a wholesale distributor. Because this seedless watermelon costs $4,will sell for $7,and is highly perishable,he expects only to sell between six and nine of them. Based on a maximin decision strategy,what alternative is selected?
A)Order 6
B)Order 7
C)Order 8
D)Order 9

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Multiple Choice

Q 47Q 47

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the payoff table shown next,giving the estimated profit when a retailer purchases from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. What is the expected payoff for purchasing one dozen T-shirts?
A)0
B)72
C)120
D)168

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Multiple Choice

Q 48Q 48

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the payoff table shown next,giving the estimated profit when a retailer purchases from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. What is the expected payoff for purchasing two dozen T-shirts?
A)72
B)120
C)168
D)192

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Multiple Choice

Q 49Q 49

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the payoff table shown next,giving the estimated profit when a retailer purchases from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. What is the expected payoff for purchasing three dozen T-shirts?
A)72
B)120
C)168
D)192

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Multiple Choice

Q 50Q 50

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the payoff table shown next,giving the estimated profit when a retailer purchases from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. What is the expected payoff for purchasing four dozen T-shirts?
A)72
B)120
C)168
D)192

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Multiple Choice

Q 51Q 51

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the payoff table shown next,giving the estimated profit when a retailer purchases from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. How many dozen ICT T-shirts should be purchased to yield the highest potential payoff?
A)1
B)2
C)3
D)4

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Multiple Choice

Q 52Q 52

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the payoff table shown next,giving the estimated profit when a retailer purchases from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. How many dozen ICT T-shirts should be purchased to yield the highest expected monetary value?
A)1
B)2
C)3
D)4

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Multiple Choice

Q 53Q 53

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the following opportunity loss table showing the potential lost profit for each purchase decision or act from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. What is the expected opportunity loss of purchasing one dozen T-shirts?
A)84
B)108
C)156
D)204

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Multiple Choice

Q 54Q 54

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the following opportunity loss table showing the potential lost profit for each purchase decision or act from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. What is the expected opportunity loss of purchasing two dozen T-shirts?
A)84
B)108
C)156
D)204

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Multiple Choice

Q 55Q 55

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the following opportunity loss table showing the potential lost profit for each purchase decision or act from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. What is the expected opportunity loss of purchasing three dozen T-shirts?
A)84
B)108
C)156
D)204

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Multiple Choice

Q 56Q 56

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the following opportunity loss table showing the potential lost profit for each purchase decision or act from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. What is the expected opportunity loss of purchasing four dozen T-shirts?
A)84
B)108
C)156
D)204

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Multiple Choice

Q 57Q 57

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the following opportunity loss table showing the potential lost profit for each purchase decision or act from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. How many dozen T-shirts should you purchase based on minimizing the expected opportunity loss?
A)1
B)2
C)3
D)4

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Multiple Choice

Q 58Q 58

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the payoff table shown next,giving the estimated profit when a retailer purchases from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. What is the maximum payoff under conditions of certainty?
A)120
B)240
C)360
D)480

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Multiple Choice

Q 59Q 59

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the payoff table shown next,giving the estimated profit when a retailer purchases from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. What is the value of perfect information if the expected payoff is $180?
A)0
B)96
C)120
D)150

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Multiple Choice

Q 60Q 60

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the payoff table shown next,giving the estimated profit when a retailer purchases from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. What would be the best decision if the maximin strategy is used?
A)1
B)2
C)3
D)4

Free

Multiple Choice

Q 61Q 61

The national sales manager for "I colored this" (ICT)T-shirts provides all salespersons with the payoff table shown next,giving the estimated profit when a retailer purchases from one to four dozen T-shirts. The probability of demand for each state of nature is also shown. What would be the best decision if the maximax strategy is used?
A)1
B)2
C)3
D)4

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Multiple Choice

Q 62Q 62

A person is trying to decide if he or she should buy a lottery ticket. The ticket costs $2.00. If the ticket is a winner,the prize would be $1,000. Knowing that winning $1,000 is not a certain outcome (state of nature),the person finds that the probability of winning is 0.001. Based on this information,the following payoff table can be constructed: What is the probability of losing $2.00?
A)0.001
B)0.999
C)1.00
D)Cannot be computed

Free

Multiple Choice

Q 63Q 63

A person is trying to decide if he or she should buy a lottery ticket. The ticket costs $2.00. If the ticket is a winner,the prize would be $1,000. Knowing that winning $1,000 is not a certain outcome (state of nature),the person finds that the probability of winning is 0.001. Based on this information,the following payoff table can be constructed: What is the decision that uses a maximax or optimistic approach?
A)Buy
B)Don't buy
C)Lose
D)Win

Free

Multiple Choice

Q 64Q 64

A person is trying to decide if he or she should buy a lottery ticket. The ticket costs $2.00. If the ticket is a winner,the prize would be $1,000. Knowing that winning $1,000 is not a certain outcome (state of nature),the person finds that the probability of winning is 0.001. Based on this information,the following payoff table can be constructed: What is the decision that uses a maximin approach?
A)Buy
B)Don't buy
C)Lose
D)Win

Free

Multiple Choice

Q 65Q 65

A person is trying to decide if he or she should buy a lottery ticket. The ticket costs $2.00. If the ticket is a winner,the prize would be $1,000. Knowing that winning $1,000 is not a certain outcome (state of nature),the person finds that the probability of winning is 0.001. Based on this information,the following payoff table can be constructed: What is the expected monetary value of buying the ticket?
A)+$1.00
B)−$0.998
C)+$0.998
D)−$1.998

Free

Multiple Choice

Q 66Q 66

A person is trying to decide if he or she should buy a lottery ticket. The ticket costs $2.00. If the ticket is a winner,the prize would be $1,000. Knowing that winning $1,000 is not a certain outcome (state of nature),the person finds that the probability of winning is 0.001. Based on this information,the following payoff table can be constructed: Based on the expected monetary value of buying a ticket,what is the best decision?
A)Buy
B)Don't buy
C)Lose
D)Win

Free

Multiple Choice

Q 67Q 67

A person is trying to decide if he or she should buy a lottery ticket. The ticket costs $2.00. If the ticket is a winner,the prize would be $1,000. Knowing that winning $1,000 is not a certain outcome (state of nature),the person finds that the probability of winning is 0.001. Based on this information,the following payoff table can be constructed: What is the value of perfect information?
A)$1.00
B)$0.998
C)$1.998
D)Cannot be computed

Free

Multiple Choice