Deck 13: Decision Analysis

Question 1

To find the EVSI,

A) use the EVPI to calculate sample information probabilities.
B) use indicator probabilities to calculate prior probabilities.
C) use prior and sample information probabilities to calculate revised probabilities.
D) use sample information to revise the sample information probabilities.

Answer 1

C

Question 2

Sample information with an efficiency rating of 100% is perfect information.

Answer 2

True

Question 3

For a minimization problem, the optimistic approach is often referred to as the

A) minimax approach
B) maximin approach
C) maximax approach
D) minimum approach

Answer 3

D

Question 4

The efficiency of sample information is

A) EVSI*(100%)
B) EVSI/EVPI*(100%)
C) EVwoSI/EVwoPI*(100%)
D) EVwSI/EVwoSI*(100%)

Question 5

In an influence diagram, decision nodes are represented by

A) circles or ovals
C) diamonds
B) squares or rectangles
D) triangles

Question 6

For a minimization problem, the conservative approach is often referred to as the

A) minimax approach
B) maximin approach
C) maximax approach
D) minimum approach

Question 7

States of nature

A) can describe uncontrollable natural events such as floods or freezing temperatures.
B) can be selected by the decision maker.
C) cannot be enumerated by the decision maker.
D) All of the alternatives are true.

Question 8

For a maximization problem, the optimistic approach is often referred to as the

A) minimax approach
B) maximin approach
C) maximax approach
D) minimum approach

Question 9

A decision tree

A) presents all decision alternatives first and follows them with all states of nature.
B) presents all states of nature first and follows them with all decision alternatives.
C) alternates the decision alternatives and states of nature.
D) arranges decision alternatives and states of nature in their natural chronological order.

Question 10

States of nature should be defined so that one and only one will actually occur.

Question 11

Decision alternatives are structured so that several could occur simultaneously.

Question 12

Decision tree probabilities refer to

A) the probability of finding the optimal strategy
B) the probability of the decision being made
C) the probability of overlooked choices
D) the probability of an uncertain event occurring

Question 13

If P(high) = .3, P(low) = .7, P(favorable | high) = .9, and P(unfavorable | low) = .6, then P(favorable) =

A) .10
B) .27
C) .30
D) .55

Question 14

For a maximization problem, the conservative approach is often referred to as the

A) minimax approach
B) maximin approach
C) maximax approach
D) minimum approach

Question 15

Which of the methods for decision making best protects the decision maker from undesirable results?

A) the optimistic approach
B) the conservative approach
C) minimum regret
D) minimax regret

Question 16

Sensitivity analysis considers

A) how sensitive the decision maker is to risk.
B) changes in the number of states of nature.
C) changes in the values of the payoffs.
D) changes in the available alternatives.

Question 17

Making a good decision

A) requires probabilities for all states of nature.
B) requires a clear understanding of decision alternatives, states of nature, and payoffs.
C) implies that a desirable outcome will occur.
D) All of the alternatives are true.

Question 18

Which of the following approaches to decision making requires knowledge of the probabilities of the states of nature?

A) minimax regret
C) expected value
B) maximin
D) conservative

Question 19

A payoff

A) is always measured in profit.
B) is always measured in cost.
C) exists for each pair of decision alternative and state of nature.
D) exists for each state of nature.

Question 20

The options from which a decision maker chooses a course of action are

A) called the decision alternatives.
B) under the control of the decision maker.
C) not the same as the states of nature.
D) All of the alternatives are true.

Question 21

Maximizing the expected payoff and minimizing the expected opportunity loss result in the same recommended decision.

Question 22

Fold back this decision tree. Clearly state the decision strategy you determine.

Question 23

Expected value is the sum of the weighted payoff possibilities at a circular node in a decision tree.

Question 24

The expected value approach is more appropriate for a one-time decision than a repetitive decision.

Question 25

EVPI equals the expected regret associated with the minimax decision.

Question 26

EVPI is always greater than or equal to EVSI.

Question 27

Square nodes in a decision tree indicate that a decision must be made.

Question 28

A decision strategy is a sequence of decisions and chance outcomes, where the decisions chosen depend on the yet to be determined outcomes of chance events.

Question 29

The expected value of an alternative can never be negative.

Question 30

The expected value of sample information can never be less than the expected value of perfect information.

Question 31

The minimum expected opportunity loss provides the best decision, regardless of whether the decision analysis involves minimization or maximization.

Question 32

After all probabilities and payoffs are placed on a decision tree, the decision maker calculates expected values at state of nature nodes and makes selections at decision nodes.

Question 33

Circular nodes in a decision tree indicate that it would be incorrect to choose a path from the node.

Question 34

Fold back the decision tree and state what strategy should be followed.

Question 35

If sample information is obtained, the result of the sample information will be either positive or negative. No matter which result occurs, the choice to select option A or option B exists. And no matter which option is chosen, the eventual outcome will be good or poor. Complete the table.

Question 36

Risk analysis helps the decision maker recognize the difference between the expected value of a decision alternative and the payoff that may actually occur.