Brs Mdm3 Tif Ch08

Topics: Decision theory, Game theory, Decision making Pages: 19 (3288 words) Published: January 11, 2015

Managerial Decision Modeling w/ Spreadsheets, 3e (Balakrishnan/Render/Stair) Chapter 8 Decision Analysis

8.1 Chapter Questions

1) Determining the best payoff for each alternative and choosing the alternative with the "best of the best" is the approach called: A) maximax
B) maximin
C) Laplace
D) minimax regret
E) expected monetary value
Answer: A
Page Ref: 323
Topic: Decision Making Under Uncertainty
Difficulty: Moderate

2) Determining the worst payoff for each alternative and choosing the alternative with the "best of the worst" is the approach called: A) maximax
B) maximin
C) Laplace
D) minimax regret
E) expected monetary value
Answer: B
Page Ref: 323
Topic: Decision Making Under Uncertainty
Difficulty: Moderate

3) The approach that is used for analyzing decision trees is called: A) maximax
B) maximin
C) Laplace
D) minimax regret
E) expected monetary value
Answer: E
Page Ref: 332
Topic: Decision Trees
Difficulty: Easy
4) Determining the average payoff for each alternative and choosing the one with the best payoff is the approach called: A) maximax
B) maximin
C) Laplace
D) minimax regret
E) expected monetary value
Answer: C
Page Ref: 324
Topic: Decision Making Under Uncertainty
Difficulty: Moderate

Use this information to answer the following questions.

Consider the following payoff table that represents the profits earned for each alternative (A, B, and C) under the states of nature S1, S2, and S3.
S1S2S3
A$60$145$120 B$75$125$110
C$95$85$130

5) Refer to the payoff table. Using the maximax criterion, what would be the highest expected payoff? A) $145
B) $124
C) $120
D) $110
E) $100
Answer: A
Page Ref: 323
Topic: Decision Making Under Uncertainty
Difficulty: Moderate
AACSB: Analytic Skills

6) Refer to the payoff table. Using the maximin criterion, what would be the highest expected payoff? A) $145
B) $125
C) $85
D) $75
E) $60
Answer: C
Page Ref: 323
Topic: Decision Making Under Uncertainty
Difficulty: Moderate
AACSB: Analytic Skills
7) Refer to the payoff table. Using the Laplace criterion, what would be the highest expected payoff? A) $103.3
B) $108.3
C) $120
D) $125
E) $145
Answer: B
Page Ref: 324
Topic: Decision Making Under Uncertainty
Difficulty: Moderate
AACSB: Analytic Skills

8) Refer to the payoff table. Using the criterion of realism and an alpha value of 0.7, what would be the highest expected payoff? A) $127
B) $119.5
C) $98.5
D) $116
E) $145
Answer: B
Page Ref: 324
Topic: Decision Making Under Uncertainty
Difficulty: Moderate
AACSB: Analytic Skills

9) Refer to the payoff table. Using the minimax regret criterion, which alternative would you choose? A) A
B) B
C) C
D) A or B
E) B or C
Answer: B
Page Ref: 325
Topic: Decision Making Under Uncertainty
Difficulty: Moderate
AACSB: Analytic Skills
10) Refer to the payoff table. Using the expected monetary value (EMV) criterion, what is the highest attainable expected profit? Assume P(S1) = 0.5 and P(S2) = 0.25. A) $101.25
B) $103.33
C) $108.33
D) $125
E) $145
Answer: A
Page Ref: 327
Topic: Decision Making Under Risk
Difficulty: Moderate
AACSB: Analytic Skills

11) Refer to the payoff table. What is the expected value under certainty? Assume P(S1) = 0.5 and P(S2) = 0.25. A) $101.25
B) $103.33
C) $108.33
D) $116.25
E) $136.25
Answer: D
Page Ref: 328
Topic: Decision Making Under Risk
Difficulty: Moderate
AACSB: Analytic Skills

12) Refer to the payoff table. What is the expected value of perfect information (EVPI)? Assume P(S1) = 0.5 and P(S2) = 0.25. A) $0
B) $11.25
C) $15
D) $20
E) $35
Answer: C
Page Ref: 329
Topic: Decision Making Under Risk
Difficulty: Moderate
13) What is the correct equation for computing the expected value of perfect information (EVPI)? A) EVPI = expected value under risk for best alternative - expected value under...
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