Expected monetary value (EMV)
is the average or expected monetary outcome of a decision if it can be repeated a large number of
times.
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.
Answer: TRUE
EVPI (expected value of perfect information)
is a measure of the maximum EMV as a result of additional information.
To determine the effect of input changes on decision results, we should perform a sensitivity analysis.
Answer: TRUE
The decision theory processes of maximizing expected monetary value (EMV) and minimizing expected
opportunity loss (EOL) should lead us to choose the same alternatives.
Answer: TRUE
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.
Answer: TRUE
A decision table is sometimes called a payout table.
Answer: TRUE
It is possible for an alternative to be the best among all decision criteria.
Answer: TRUE
Any problem that can be presented in a decision table can also be graphically portrayed in a decision
tree.
Answer: TRUE
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.
Answer: TRUE
decision theory.
An analytic and systematic approach to the study of decision making is referred to as
What makes the difference between good decisions and bad decisions?
A good decision considers all alternatives.
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Expected monetary value (EMV) is
the average or expected monetary outcome of a decision if it can be repeated a large number of times.
The following is considered a criteria for decision making under uncertainty?
optimistic, pessimistic, equally likely, minimax regret
A pessimistic decision making criterion is
maximin
Which of the following is true about the expected value of perfect information?
It is calculated as expected value with perfect information minus maximum EMV.
the following are characteristics of a good decision?
based on logic, considers all available data, considers all possible alternatives, employs appropriate
quantitative techniques
Optimistic decision makers tend to
magnify favorable outcomes, ignore bad outcomes
Pessimistic decision makers tend to
discount favorable outcomes
In decision theory, we call the payoffs resulting from each possible combination of alternatives and
outcomes
conditional values
Another name for a decision table is a
payoff table
How are decision tables organized?
alternatives down the left, states of nature on top, payoffs inside
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The three decision-making environments are decision making under
risk, certainty, and uncertainty
In decision making under ________, there are several possible outcomes for each alternative, and the
decision maker does not know the probabilities of the various outcomes.
uncertainty
In decision making under ________, there are several possible outcomes for each alternative, and the
decision maker knows the probability of occurrence of each outcome.
risk
The optimistic decision criterion is the criterion of
maximax
The equally likely criterion is also called the ________ criterion.
Laplace
Decision trees are particularly useful when
a sequence of decisions must be made
A market research survey is available for $10,000. Using a decision tree analysis, it is found that the
expected monetary value with no survey is $62,000. If the expected value of sample information is -
$7,000, what is the expected monetary value with the survey?
$45,000
In the construction of decision trees, which of the following shapes represents a state of nature node?
circle
In the construction of decision trees, which of the following shapes represents a decision node?
square
What is the range of the Hurwicz criterion coefficient of realism α?
0 to 1
