Deck 14: Decision Analysis

Question 1

Decision analysis supports all but one of the following goals. Which goal is not supported?

A) Help make good decisions.
B) Help ensure selection of good outcomes.
C) Analyze decision problems logically.
D) Incorporate problem uncertainty.

Answer 1

B

Question 2

The ____ correspond to future events that are not under the control of the decision maker.

A) payoffs
B) states of nature
C) criteria
D) alternatives

Answer 2

B

Question 3

A payoff matrix depicts ____ versus ____ with payoffs for each intersection cell.

A) decision criteria; states of nature.
B) decision alternatives; potential outcomes.
C) decision alternatives; states of nature.
D) decision criteria; potential outcomes.

Answer 3

C

Question 4

How are states of nature assigned probabilities?

A) Use historical data.
B) Use best judgements.
C) Use interview results.
D) All of these.

Question 5

Which decision rule optimistically assumes that nature will always be "on our side" regardless of what decision we make?

A) maximax decision rule.
B) maximin decision rule.
C) minimax regret decision rule.
D) minimin decision rule.

Question 6

The decision rule which determines the maximum payoff for each alternative and then selects the alternative associated with the largest payoff is the

A) maximax decision rule.
B) maximin decision rule.
C) minimax regret decision rule.
D) minimin decision rule.

Question 7

Which of the following summarizes the final outcome for each decision alternative?

A) payoff matrix
B) outcome matrix
C) yield matrix
D) performance matrix

Question 8

Exhibit 14.1
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem.

Refer to Exhibit 14.1. What decision should be made according to the maximax decision rule?

A) A
B) B
C) C
D) Bank

Question 9

Which decision rule pessimistically assumes that nature will always be "against us" regardless of what decision we make?

A) maximax decision rule.
B) maximin decision rule.
C) minimax regret decision rule.
D) minimin decision rule.

Question 10

The category of decision rules that contains the maximax decision rule is the

A) optimistic category.
B) non-probabilistic category.
C) probabilistic category.
D) optimality category.

Question 11

A(n) ____ is a course of action intended to solve a problem.

A) decision
B) criteria
C) state of nature
D) alternative

Question 12

The decision rule which determines the minimum payoff for each alternative and then selects the alternative associated with the largest minimum payoff is the

A) maximax decision rule.
B) maximin decision rule.
C) minimax regret decision rule.
D) minimin decision rule.

Question 13

Every nonprobabilistic method has a weakness for decision making. Which of the following is incorrect regarding a method and its weakness?

A) The maximax method ignores potentially large losses.
B) The maximin method ignores potentially large payoffs.
C) The minimax regret method can lead to inconsistent decisions.
D) All of these are correct.

Question 14

A course of action intended to solve a problem is called a(n)

A) alternative.
B) option.
C) decision.
D) criteria.

Question 15

Which of the following is a goal of decision analysis?

A) Help individuals make good decisions.
B) Ensure decisions lead to good outcomes.
C) Avoiding decisions leading to bad outcomes.
D) Reduce the role of luck in a decision.

Question 16

Decision Analysis techniques provide modeling techniques to help decision makers make decisions. Which of the following is not typically a benefit of decision analysis?

A) Incorporating uncertainty via probabilities.
B) Incorporating risk via utility theory functions.
C) Incorporating uncertainty via exponential distributions.
D) Structuring decision strategies via decision trees.

Question 17

The amount of opportunity lost in making a decision is called

A) loss.
B) frustration.
C) negative profit.
D) regret.

Question 18

The ____ in a decision problem represent factors that are important to the decision maker.

A) payoffs
B) states of nature
C) criteria
D) alternatives

Question 19

The decision rule which selects the alternative associated with the smallest maximum opportunity loss is the

A) maximax decision rule.
B) maximin decision rule.
C) minimax regret decision rule.
D) minimin decision rule.

Question 20

Although modeling provides valuable insight to decision makers, decision making remains a difficult task. Which of the following is not a primary cause for this difficulty discussed in the Decision Analysis chapter?

A) Uncertainty regarding the future.
B) Models provide decisions for the decision maker.
C) Conflicting values.
D) Conflicting objectives.

Question 21

Exhibit 14.3
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 70% and an expanding economy at 30%.

Refer to Exhibit 14.3. What is the expected monetary value of Investment A?

A)34.
B)30.
C)20.
D) 15.

Question 22

Exhibit 14.3
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 70% and an expanding economy at 30%.

Refer to Exhibit 14.3. What formula should go in cell F5 and copied to F6:F8 of the spreadsheet if the expected regret decision rule is to be used?

A) =B$5-MAX(B$5:B$8)
B) =MAX(B$5:B$8)-MAX(B5)
C) =MAX(B$5:B$8)-MIN(B$5:B$8)
D) =MAX(B$5:B$8)-B5

Question 23

Exhibit 14.2
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem.
$\begin{array}{|c|c|c|c|c|c|c|c|c|} \hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } & \text { F } & \text { G } & \text { H } \\\hline 1 & & \text { Payoff Matrix } & & & & \text { Regret Matrix } & & \\\hline 2 & & & & & & & & \\\hline 3 & & \text { Economy } & & & & \text { Economy } & & \\\hline 4 & \text { Investment } & \text { Decline } & \text { Expand } & & \text { Investment } & \text { Decline } & \text { Expand } & \\\hline 5 & \text { A } & 0 & 85 & & \text { A } & & & \\\hline 6 & \text { B } & 25 & 65 & & \text { B } & & & \\\hline 7 & \text { C } & 40 & 30 & & \text { C } & & & \\\hline 8 & \text { Bank } & 10 & 10 & & \text { Bank } & & &\\\hline\end{array}$


-Refer to Exhibit 14.2. What formula should go in cell F5 of the Regret Matrix above to compute the regret value?

A) =B$5-MAX(B$5:B$8)
B) =MAX(B$5:B$8)-MAX(B5)
C) =MAX(B$5:B$8)-MIN(B$5:B$8)
D) =MAX(B$5:B$8)-B5

Question 24

Exhibit 14.4
The following questions are based on the information below.

Refer to Exhibit 14.4. What is the expected value of perfect information for the investor?

A) 13.5
B) 20
C) 45.5
D) 59

Question 25

The decision with the smallest expected opportunity loss (EOL) will also have the

A) smallest EMV.
B) largest EMV.
C) smallest regret.
D) largest regret.

Question 26

Exhibit 14.4
The following questions are based on the information below.

Refer to Exhibit 14.4. What is the expected value with perfect information for the investor?

A) 13.5
B) 45.5
C) 59
D) 80

Question 27

Exhibit 14.3
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 70% and an expanding economy at 30%.

Refer to Exhibit 14.3. What decision should be made according to the expected monetary value decision rule?

A) A
B) B
C) C
D) Bank

Question 28

Exhibit 14.1
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem.

Refer to Exhibit 14.1. What formula should go in cell D5 to implement the maximin decision rule?

A) =MAX(MIN(B5:C5))
B) =MIN(B5:C5)
C) =AVERAGE(B5:C5)
D) =MAX(B5:C5)

Question 29

Exhibit 14.3
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 70% and an expanding economy at 30%.

Refer to Exhibit 14.3. What decision should be made according to the expected regret decision rule?

A) A
B) B
C) C
D) Bank

Question 30

Expected regret is also called

A) EMV.
B) EOL.
C) EPA.
D) EOQ.

Question 31

Leaves of a decision tree are also called ____ nodes.

A) end
B) terminal
C) decision
D) payoff

Question 32

Exhibit 14.1
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem.

Refer to Exhibit 14.1. What formula should go in cell D5 to implement the maximax decision rule?

A) =MAX(MAX(B5:C5))
B) =MIN(B5:C5)
C) =AVERAGE(B5:C5)
D) =MAX(B5:C5)

Question 33

A square node in a decision tree is called a(n) ____ node.

A) chance
B) random
C) decision
D) event

Question 34

Exhibit 14.2
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem.
$\begin{array}{|c|c|c|c|c|c|c|c|c|} \hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } & \text { F } & \text { G } & \text { H } \\\hline 1 & & \text { Payoff Matrix } & & & & \text { Regret Matrix } & & \\\hline 2 & & & & & & & & \\\hline 3 & & \text { Economy } & & & & \text { Economy } & & \\\hline 4 & \text { Investment } & \text { Decline } & \text { Expand } & & \text { Investment } & \text { Decline } & \text { Expand } & \\\hline 5 & \text { A } & 0 & 85 & & \text { A } & & & \\\hline 6 & \text { B } & 25 & 65 & & \text { B } & & & \\\hline 7 & \text { C } & 40 & 30 & & \text { C } & & & \\\hline 8 & \text { Bank } & 10 & 10 & & \text { Bank } & & &\\\hline\end{array}$


-Refer to Exhibit 14.2. What formula should go in cell H5 and copied to H6:H8 of the Regret Table above to implement the minimax regret decision rule?

A) =MAX(MAX(F5:G5))
B) =MIN(F5:G5)
C) =AVERAGE(F5:G5)
D) =MAX(F5:G5)

Question 35

The minimum EOL in a decision problem will always

A) exceed the EVPI.
B) be less than the EVPI.
C) equal the EVPI.
D) equal the EMV.

Question 36

Exhibit 14.1
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem.

Probabilistic decision rules can be used if the states of nature in a decision problem can be assigned probabilities that represent their likelihood of occurrence. Which of the following is not true regarding the probabilities employed?

A) The probabilities are always obtained from historical data.
B) The probabilities must always be unbiased.
C) The probabilities can be assigned subjectively.
D) Subjective probabilities obtained can be accurate and unbiased.

Question 37

A circular node in a decision tree is called a(n) ____ node.

A) chance
B) random
C) decision
D) event

Question 38

Exhibit 14.1
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem.

Refer to Exhibit 14.1. What decision should be made according to the maximin decision rule?

A) A
B) B
C) C
D) Bank

Question 39

Exhibit 14.4
The following questions are based on the information below.

Refer to Exhibit 14.4. What formula should go in cell D14 of the spreadsheet to compute the EVPI?

A) MAX(D5:D8)-D12
B) D12-MIN(D5:D8)
C) SUMPRODUCT(B12:C12,B10:C10)-MAX(D5:D8)
D) D12-MAX(D5:D8)

Question 40

Exhibit 14.1
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem.

Refer to Exhibit 14.1. What decision should be made according to the minimax regret decision rule?

A) A
B) B
C) C
D) Bank

Question 41

What is the formula for the weighted average score for alternative j when using a multi-criteria scoring model?

A) $$\sum _ { i } w _ { i } s _ { i j }$$
B) $$\sum _ { i } w s _ { j }$$
C) $$\sum _ { i } w _ { j } s _ { i j }$$
D) $$\sum _ { i } w _ { i } s _ { j }$$

Question 42

What is the formula for the exponential utility function U(x)?

A) e^x/R
B) 1 + e^x/R
C) 1  e^x/R
D) 1  e^x/R

Question 43

Based on the radar chart of the weighted scores provided below, which of the following interpretations is incorrect?

A) Site A wins on the Sales criteria but is last on the Location criteria.
B) Site C wins on the Security criteria and scores high on the remaining three criteria.
C) Site B scores lowest on each of the four criteria.
D) No site dominates on each of the four criteria.

Question 44

A fast food restaurant is considering opening a new store at one of four locations. They have developed the following multi-criteria scoring model for this problem. What location should they choose based on this information? $\begin{array}{|c|c|c|c|c|c|c|c|c|}\hline & \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & \mathrm{E} & \mathrm{F} & \mathrm{G} & \mathrm{H} \\\hline 1 & & & \text { Scores } & & & & & \\\hline 2 & & & \text { Site } & \text { Site } & \text { Site } & \text { Site } & & \text { Criterion } \\\hline 3 & & \text { Criterion } & \mathrm{A} & \mathrm{B} & \mathrm{C} & \mathrm{D} & & \text { Weights } \\\hline 4 & & \text { Sales } & 0.80 & 0.75 & 0.70 & 0.65 & & 0.4 \\\hline 5 & & \text { Location } & 0.70 & 0.80 & 0.88 & 0.95 & & 0.3 \\\hline 6 & & \text { Security } & 0.40 & 0.50 & 0.60 & 0.50 & & 0.2 \\\hline 7 & & \text { Growth } & 0.60 & 0.60 & 0.80 & 0.85 & & 0.1 \\\hline 8 & & \text { Weighted average score } & & & & & & 1 \\\hline\end{array}$

A) A
B) B
C) C
D) D

Question 45

Exhibit 14.6
The following questions use the information below.
A company is planning a plant expansion. They can build a large or small plant. The payoffs for the plant depend on the level of consumer demand for the company's products. The company believes that there is an 69% chance that demand for their products will be high and a 31% chance that it will be low. The company can pay a market research firm to survey consumer attitudes towards the company's products. There is a 63% chance that the customers will like the products and a 37% chance that they won't. The payoff matrix and costs of the two plants are listed below. The company believes that if the survey is favorable there is a 92% chance that demand will be high for the products. If the survey is unfavorable there is only a 30% chance that the demand will be high. The following decision tree has been built for this problem. The company has computed that the expected monetary value of the best decision without sample information is 154.35 million. The company has developed the following conditional probability table for their decision problem.

Refer to Exhibit 14.6. What is P(FH), where F = favorable response and H = high demand?

A) .58
B) .63
C) .84
D) .92

Question 46

A company is planning a plant expansion. They can build a large or small plant. The payoffs for the plant depend on the level of consumer demand for the company's products. The company believes that there is an 69% chance that demand for their products will be high and a 31% chance that it will be low. The company can pay a market research firm to survey consumer attitudes towards the company's products. There is a 63% chance that the customers will like the products and a 37% chance that they won't. The payoff matrix and costs of the two plants are listed below. The company believes that if the survey is favorable there is a 92% chance that demand will be high for the products. If the survey is unfavorable there is only a 30% chance that the demand will be high. The following decision tree has been built for this problem. The company has computed that the expected monetary value of the best decision without sample information is 154.35 million. What is the EVSI for this problem (in $ million)? $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\underline{\text { Demand} }$
$\begin{array}{l}\begin{array} { l c c c } \text { Factory Gize } & \text { High } & \text { Low } & \text { Plant Cost (\$million) } \\\hline \text { Large } & 200 & 85 & 10 \\\text { Small } & 100 & 95 & 2\end{array}\end{array}$

A) 0.07
B) 26.38
C) 109.5
D) 180.8

Question 47

Exhibit 14.7
The following questions use the information below.
A decision maker is faced with two alternatives. The decision maker has determined that she is indifferent between the two alternatives when p = 0.45.
$\begin{array}{ll}\text { Alternative 1: } & \text { Receive } \$ 82,000 \text { with certainty } \\ \text { Alternative 2: } & \text { Receive } \$ 143,000 \text { with probability } \mathrm{p} \text { and lose } \$ 15,000 \text { with probability (1 -p)}\end{array}$


-Refer to Exhibit 14.7. What is the decision maker's certainty equivalent for this problem?

A) ?$15,000
B) $82,000
C) $56,100
D) $82,000.

Question 48

The total worth, value or desirability of a decision alternative is called its

A) usefulness.
B) worthiness.
C) utility.
D) risk.

Question 49

Exhibit 14.7
The following questions use the information below.
A decision maker is faced with two alternatives. The decision maker has determined that she is indifferent between the two alternatives when p = 0.45.
$\begin{array}{ll}\text { Alternative 1: } & \text { Receive } \$ 82,000 \text { with certainty } \\ \text { Alternative 2: } & \text { Receive } \$ 143,000 \text { with probability } \mathrm{p} \text { and lose } \$ 15,000 \text { with probability (1 -p)}\end{array}$


-Refer to Exhibit 14.7. What is the decision maker's risk premium for this problem?

A) ?$20,000
B) ?$25,900
C) $70,000
D) $80,000

Question 50

Exhibit 14.8
The following questions use the information below.
A company needs to buy a new insurance policy. They have three policies to choose from, A, B and C. The policies differ with respect to price, coverage and ease of billing. The company has developed the following AHP tables for price and summary. The other tables are not shown due to space limitations.

Refer to Exhibit 14.8. What formula should go in cell F11 and get copied to F12:F13 of the Price worksheet to compute the Price Score?

A) =AVERAGE(C4:C6)
B) =AVERAGE(C11:E11)
C) =AVERAGE(G11:G13)
D) =AVERAGE(C7:E7)

Question 51

The scores in a scoring model can be thought of as subjective assessments of

A) usefulness.
B) worthiness.
C) utility.
D) payoff.

Question 52

Exhibit 14.5
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C, D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following decision tree has been developed for the problem. The investor has estimated the probability of a declining economy at 40% and an expanding economy at 60%.

Refer to Exhibit 14.5. What is the expected monetary value for the investor's problem?

A) 32
B) 36
C) 38
D) 42

Question 53

Exhibit 14.7
The following questions use the information below.
A decision maker is faced with two alternatives. The decision maker has determined that she is indifferent between the two alternatives when p = 0.45.
$\begin{array}{ll}\text { Alternative 1: } & \text { Receive } \$ 82,000 \text { with certainty } \\ \text { Alternative 2: } & \text { Receive } \$ 143,000 \text { with probability } \mathrm{p} \text { and lose } \$ 15,000 \text { with probability (1 -p)}\end{array}$


-Refer to Exhibit 14.7. What is the expected value of Alternative 2 for this decision maker?

A) $82,000
B) $56,100
C) $64,350
D) $72,600

Question 54

Exhibit 14.5
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C, D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following decision tree has been developed for the problem. The investor has estimated the probability of a declining economy at 40% and an expanding economy at 60%.

Refer to Exhibit 14.5. What is the correct decision for this investor based on an expected monetary value criteria?

A) A
B) B
C) C
D) D

Question 55

A "risk averse" decision maker assigns the ____ relative utility to any payoff but has a(n) ____ marginal utility for increased payoffs.

A) largest; increasing
B) largest; diminishing
C) smallest; diminishing
D) smallest; increasing

Question 56

Exhibit 14.6
The following questions use the information below.
A company is planning a plant expansion. They can build a large or small plant. The payoffs for the plant depend on the level of consumer demand for the company's products. The company believes that there is an 69% chance that demand for their products will be high and a 31% chance that it will be low. The company can pay a market research firm to survey consumer attitudes towards the company's products. There is a 63% chance that the customers will like the products and a 37% chance that they won't. The payoff matrix and costs of the two plants are listed below. The company believes that if the survey is favorable there is a 92% chance that demand will be high for the products. If the survey is unfavorable there is only a 30% chance that the demand will be high. The following decision tree has been built for this problem. The company has computed that the expected monetary value of the best decision without sample information is 154.35 million. The company has developed the following conditional probability table for their decision problem.

Refer to Exhibit 14.6. What formula should go in cell C13 of the probability table?

A) =C5/$D4
B) =C5/C$6
C) =C5/$D5
D) =C4/$D4

Question 57

The scores in a scoring model range from

A) 0 to 1
B) 1 to +1
C) 0 to 5
D) 0 to 10

Question 58

Based on the radar chart of raw scores provided below, why is this decision complex?

A) The chart is hard to read.
B) No site wins on all four criteria.
C) No site achieves a perfect score of 1.0 on a criteria.
D) No sites have sufficient security.

Question 59

An investor is considering 2 investments, A, B, which can be made now. After these investments are made he can pursue choices C, D, E and F depending on whether he chose A or B originally. He has developed the following decision tree to aid in his selection process. What are the correct original and subsequent decisions based on an expected monetary value criteria?

A) A, C
B) A, D
C) B, E
D) B, F

Question 60

Exhibit 14.5
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C, D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following decision tree has been developed for the problem. The investor has estimated the probability of a declining economy at 40% and an expanding economy at 60%.

Refer to Exhibit 14.5. How high can P(E) go before the investor's decision, based on expected monetary value criteria, changes?

A) 0.65
B) 0.70
C) 0.75
D) 0.80

Question 61

Exhibit 14.9
The following questions are based on the information below.
An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the investment decision problem.

Refer to Exhibit 14.9. What formula should go in cell D5 and get copied to D6:D8 to implement the maximin decision rule?

Question 62

Exhibit 14.10
The following questions are based on the information below.
An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 80% and an expanding economy at 20%.

Refer to Exhibit 14.10. Complete the table using the expected monetary value decision rule and indicate which decision should be made according to that rule.

Question 63

Exhibit 14.10
The following questions are based on the information below.
An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 80% and an expanding economy at 20%.

Refer to Exhibit 14.10. The original payoff data is in the worksheet above called "Payoffs". What formula should go in cell B5 of the spreadsheet if the expected regret decision rule is to be used?

Question 64

Exhibit 14.9
The following questions are based on the information below.
An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the investment decision problem.

Refer to Exhibit 14.9. Assume the formula =MIN(B5:C5) was entered in cell D5 and copied to cells D6:D8. What formula should go in cell E5 and get copied to cells E6:E8 to place a "<==" to indicate the choice according to the maximin decision rule?

Question 65

Exhibit 14.8
The following questions use the information below.
A company needs to buy a new insurance policy. They have three policies to choose from, A, B and C. The policies differ with respect to price, coverage and ease of billing. The company has developed the following AHP tables for price and summary. The other tables are not shown due to space limitations.

Refer to Exhibit 14.8. What formula should go in cell G15 of the Price worksheet to compute the Consistency Ratio?

A) =AVERAGE(G11:G13)-3)/(2*0.58)
B) =AVERAGE(G11:G13)-3)
C) =AVERAGE(G11:G13))/(2*0.58)
D) =AVERAGE(G11:G13)-3)/0.58

Question 66

Exhibit 14.9
The following questions are based on the information below.
An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the investment decision problem.

Refer to Exhibit 14.9. What decision should be made according to the maximax decision rule?

Question 67

Exhibit 14.8
The following questions use the information below.
A company needs to buy a new insurance policy. They have three policies to choose from, A, B and C. The policies differ with respect to price, coverage and ease of billing. The company has developed the following AHP tables for price and summary. The other tables are not shown due to space limitations.

Refer to Exhibit 14.8. Which policy should the company choose based on the Summary worksheet?

A) A
B) B
C) C
D) None of these

Question 68

Exhibit 14.8
The following questions use the information below.
A company needs to buy a new insurance policy. They have three policies to choose from, A, B and C. The policies differ with respect to price, coverage and ease of billing. The company has developed the following AHP tables for price and summary. The other tables are not shown due to space limitations.

Refer to Exhibit 14.8. What formula should go in cell C7 and get copied to D7:E7 of the Summary worksheet to compute the Weighted Average Score?

A) =SUMPRODUCT(C4:E4,$G$4:$G$6)
B) =SUMPRODUCT(C4:C6,$C$5:$C$7)
C) =SUMPRODUCT($G$4,$G$6)
D) =SUMPRODUCT(C4:C6,$G$4:$G$6)

Question 69

Exhibit 14.9
The following questions are based on the information below.
An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the investment decision problem.

Refer to Exhibit 14.9. Assume the formula =MAX(B5:C5) was entered in cell D5 and copied to cells D6:D8. What formula should go in cell E5 and get copied to cells E6:E8 to place a "<==" to indicate the choice according to the maximax decision rule?

Question 70

Exhibit 14.10
The following questions are based on the information below.
An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 80% and an expanding economy at 20%.

Refer to Exhibit 14.10. Complete the Regret Table according to the expected regret decision rule.

Question 71

Exhibit 14.9
The following questions are based on the information below.
An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the investment decision problem.

Refer to Exhibit 14.9. What formula should go in cell D5 of the following Regret Table to implement the minimax regret decision rule? Assume that cells B5:C8 contain the regret values for the problem.

Question 72

Exhibit 14.8
The following questions use the information below.
A company needs to buy a new insurance policy. They have three policies to choose from, A, B and C. The policies differ with respect to price, coverage and ease of billing. The company has developed the following AHP tables for price and summary. The other tables are not shown due to space limitations.

Refer to Exhibit 14.8. The Consistency Ratio indicates consistency in the pairwise comparison matrix if the ratio is

A)  0.05
B)  0.10
C)  0.20
D)  0.30

Question 73

Exhibit 14.9
The following questions are based on the information below.
An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the investment decision problem.

Refer to Exhibit 14.9. The original payoff data is in the worksheet called "Payoffs". What formula should go in cell B5 of this Regret Matrix to compute the regret value?

Question 74

Exhibit 14.8
The following questions use the information below.
A company needs to buy a new insurance policy. They have three policies to choose from, A, B and C. The policies differ with respect to price, coverage and ease of billing. The company has developed the following AHP tables for price and summary. The other tables are not shown due to space limitations.

Refer to Exhibit 14.8. What formula should go in cell G11 and get copied to G12:G13 of the Price worksheet to compute the Consistency Measure?

A) =MMULT(C4:E4,$F$11:$F$13)
B) =SUMPRODUCT(C4:E4,$F$11:$F$13)/F11
C) =MMULT(C4:E4,$F$11:$F$13)/F11
D) =MMULT(C7:E7,$F$11:$F$13)/F11

Question 75

Exhibit 14.9
The following questions are based on the information below.
An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the investment decision problem.

Refer to Exhibit 14.9. What decision should be made according to the minimax regret decision rule?

Question 76

Exhibit 14.10
The following questions are based on the information below.
An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 80% and an expanding economy at 20%.

Refer to Exhibit 14.10. Complete the following table to determine the expected value of perfect information for the investor.

Question 77

Exhibit 14.9
The following questions are based on the information below.
An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the investment decision problem.

Refer to Exhibit 14.9. What decision should be made according to the maximin decision rule?

Question 78

Exhibit 14.10
The following questions are based on the information below.
An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. The investor has estimated the probability of a declining economy at 80% and an expanding economy at 20%.

Refer to Exhibit 14.10. What formulas should go in cell D5:D14 and B12:C12 of the spreadsheet to compute the EVPI?

Question 79

Exhibit 14.9
The following questions are based on the information below.
An investor is considering 4 investments, W, X, Y, and Z. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the investment decision problem.

Refer to Exhibit 14.9. What formula should go in cell D5 and get copied to D6:D8 to implement the maximax decision rule?

Question 80

An investor is considering 4 investments, A, B, C, D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following decision tree has been developed for the problem. The investor has estimated the probability of a declining economy at 25% and an expanding economy at 75%. What is the correct decision for this investor based on an expected monetary value criteria? Draw the decision tree for this problem.