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Exam 21: Decision Analysis

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Question 1

Multiple Choice

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The probability of both sample information and a particular state of nature occurring simultaneously is

A) unconditional probability
B) joint probability
C) marginal probability
D) conditional probability

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Question 2

Multiple Choice

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The process of revising prior probabilities to create posterior probabilities based on sample information is a

A) revision process
B) sampling revision
C) Bayesian revision
D) posterior revision

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Question 3

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Nodes indicating points where an uncertain event will occur are known as

New information obtained through research or experimentation that enables an updating or revision of the state-of-nature probabilities is

Exhibit 21-2 Below you are given a payoff table involving three states of nature and two decision alternatives. The probability that S₁ will occur is 0.1;the probability that S₂ will occur is 0.6. -Refer to Exhibit 21-2.The expected value of the best alternative equals

Exhibit 21-4 Below you are given a payoff table involving two states of nature and three decision alternatives. The probability of the occurrence of S₁ = 0.3. -Refer to Exhibit 21-4.The recommended decision alternative based on the expected monetary value is

Exhibit 21-3 Below you are given a payoff table involving two states of nature and three decision alternatives. The probability of the occurrence of state of nature S₁ is 0.4. -Refer to Exhibit 21-3.The expected value of perfect information equals

A fashion designer wants to produce a new line of clothes.In the production of the clothes,expensive,medium-priced,or inexpensive materials can be used.The profits associated with each type of material depend upon economic conditions next year.Below you are given the payoff table. An economist believes that the probability that the economy will improve is 20%,the probability that the economy will stay the same is 70%,and the probability that the economy will get worse is 10%. a.Compute the expected monetary value for each decision.Which decision is the best? b.Compute the expected value of perfect information.

Prior probabilities are the probabilities of the states of nature

Exhibit 21-3 Below you are given a payoff table involving two states of nature and three decision alternatives. The probability of the occurrence of state of nature S₁ is 0.4. -Refer to Exhibit 21-3.The expected monetary value of the best alternative equals

The expected opportunity loss of the best decision alternative is the

An uncertain future event affecting the consequence,or payoff,associated with a decision is known as

An investor has a choice between four investments.The profitability of the investments depends upon the market.The payoff table is given below for different market conditions. a.A market economist has stated that there is a 25% chance that the market will stay the same,a 35% chance that the market will decrease,and a 40% chance that the market will increase.Compute the expected monetary value for each investment.Which investment is the best? b.Compute the expected value of perfect information.

You are given a decision situation with three possible states of nature S₁,S₂,and S₃.The prior probabilities of the three states are 0.20,0.45,and 0.35.With sample information I,you are provided with the following information. a.Compute P(I). b.Compute the revised probabilities of P(S₁|I),P(S₂|I),and P(S₃|I).

Exhibit 21-5 Below you are given a payoff table involving three states of nature and three decision alternatives. The probability of occurrence of S₁ is 0.2 and the probability of occurrence of S₂ is 0.3. -Refer to Exhibit 21-5.The expected monetary value of the best alternative is

Exhibit 21-2 Below you are given a payoff table involving three states of nature and two decision alternatives. The probability that S₁ will occur is 0.1;the probability that S₂ will occur is 0.6. -Refer to Exhibit 21-2.The recommended decision based on the expected value criterion is

The uncontrollable future events that can affect the outcome of a decision are known as

A graphic presentation of the expected gain from the various options open to the decision maker is called

A tabular representation of the payoffs for a decision problem is a

The efficiency of information is the ratio of