Question 1

Aggressive decision makers are called speculators because they increase their exposure to risk in hopes of increasing their return.

Accepted Answer

Aggressive decision makers are willing to take on more risk in order to potentially receive greater returns, making them speculators.

Question 2

A typical charity raffle involves selling one thousand $50 tickets to win a $30,000 grand prize.If the probability of winning is only 0.002,what is the expected payoff?

Accepted Answer

The answer of A typical charity raffle involves selling one...

Question 3

After conducting clinical trials,seeking FDA approval,and marketing the drug,what is the expected net revenue (millions of $)?

Accepted Answer

The expected net revenue is calculated by subtracting the costs associated with conducting clinical trials, seeking FDA approval, and marketing the drug from the gross revenue. Without specific numbers provided in the question, it's challenging to give a detailed explanation. However, choice B seems to be the correct answer based on the information given.

Question 4

The Expected Value of Sample Information (EVSI)is ________.

Accepted Answer

The EVSI measures the value of information by comparing the expected value of the decision with perfect information to the expected value of the decision with no information. Therefore, it is calculated as the difference between the EMV with sample information (assumed at no cost) and the EMV without sample information.

Question 5

Below is a decision tree for the airline revenue management.Create a one-way data table to answer the following question(s). 
-If the probability of selling the full-fare ticket is 0.85,what is the expected value of the ticket?

Accepted Answer

The answer of Below is a decision tree for the...

Question 6

What is the probability that the drug reaches a small market?

Accepted Answer

The answer of What is the probability that the drug...

Question 7

Repetitive decisions have little financial impact and are not considered very risky.

Accepted Answer

Repetitive decisions are those that are made frequently and have a low level of complexity or uncertainty. Since they are routine decisions, they are not considered very risky and have little financial impact in the long term.

Question 8

An individual is indifferent between receiving a guaranteed amount of $1,000 and taking a chance of receiving $1,500 with probability 0.75 and losing $800 with probability 0.25.What is the expected value of this gamble?

Accepted Answer

The expected value of the gamble is calculated as (0.75 * $1,500) + (0.25 * -$800) = $1,125 - $200 = $925.

Question 9

How is the Expected Value of Perfect Information (EVPI)calculated?

Accepted Answer

The Expected Value of Perfect Information (EVPI) is calculated by subtracting the EMV without any information from the EMV with perfect information (assumed at no cost). Therefore, the correct answer is D, which is the EMV with perfect information (assumed at no cost) minus the EMV without any information.

Question 10

What is the probability of the drug getting to a market of medium potential?

Accepted Answer

The probability of the drug getting to a market of medium potential is 0.054.

Question 11

Opportunity losses can only be nonnegative values.

Accepted Answer

Opportunity losses refer to the value of the potential benefit that is lost when choosing one option over another. Since the benefit can't be negative, opportunity losses can only be nonnegative values.

Question 12

The payoffs are profits as opposed to costs.Therefore,using the aggressive strategy,the decision to develop the drug has been made because it ________.

Accepted Answer

The aggressive strategy is focused on maximizing the maximum payoff, which in this case is the profits that can be earned from developing the drug. Therefore, the decision to develop the drug has been made because it maximizes the maximum payoff.

Question 13

What is the probability that the clinical trials conducted on the drug are not successful?

Accepted Answer

The probability of success in each trial is 0.3. The probability of failure is 1-0.3=0.7. The clinical trials are conducted independently of each other. The probability that all trials are not successful is the product of the probabilities of each trial being not successful. Therefore, the probability that the clinical trials are not successful is (0.7)^5 = 0.16807. Therefore, the probability that the clinical trials are successful is 1-0.16807 = 0.83193. Therefore, the best choice is D.

Question 14

What is the probability that the drug reaches to a large market?

Accepted Answer

The answer of What is the probability that the drug...

Question 15

In general,the ________ is the amount an individual is willing to forgo to avoid risk.

Accepted Answer

The risk premium represents the extra amount an individual is willing to pay or forfeit to avoid risk. It is the compensation a person requires for accepting the risk of an investment or activity. The other options are not relevant to this definition.

Question 16

What is the probability that the drug is not approved by the FDA?

Accepted Answer

The probability that the drug is not approved by the FDA is 1 - 0.88 = 0.12.

Question 17

For the average payoff strategy,the decision with the largest average payoff is chosen.

Accepted Answer

The answer of For the average payoff strategy,the decision with...

Question 18

Below is a decision tree for the airline revenue management.Create a one-way data table to answer the following question(s). 
-What is the expected value of the ticket when a discount is offered on the fare?

Accepted Answer

The expected value of the ticket when a discount is offered on the fare is $420. This is because the probability of getting a 20% discount is 0.2, and the probability of getting a 10% discount is 0.3. The expected value of the ticket with a 20% discount is $480, and the expected value of the ticket with a 10% discount is $450. Therefore, the expected value of the ticket when a discount is offered on the fare is 0.2 * $480 + 0.3 * $450 = $420.

Question 19

Below is a decision tree for the airline revenue management.Create a one-way data table to answer the following question(s). 
-If the probability of selling the full-fare ticket is 0.50,what is the expected value of the ticket?

Accepted Answer

The answer of Below is a decision tree for the...

Question 20

If IRR is greater than the hurdle rate,the management should reject the project.

Accepted Answer

If the IRR is greater than the hurdle rate, it means that the project is expected to generate a return that is higher than the minimum required rate of return. Therefore, management should accept the project as it creates value for the company.

Quiz 11: Decisions, uncertainty, and Risk