Question 1

A tire manufacturer needs to determine the amount of production for the coming month (high vs. low). The level of production largely depends on the level of demand. For this situation, the amount of production constitutes the ________ actions.
A) alternative
B) utility
C) certainty
D) uncertainty

Accepted Answer

The alternative actions for the tire manufacturer are the choices from the amount of production, high or low.

Question 2

A ________ is a diagram that assists the decision maker in analyzing a decision problem.
A) Bayes' Theorem curve
B) decision tree
C) utility curve
D) maximax table

Accepted Answer

A maximax table is a diagram that assists the decision maker in analyzing a decision problem.

Question 3

The ________ criterion finds the worst-possible payoff for each alternative and then chooses the alternative that yields the maximum worst-possible payoff.
A) maximin
B) certainty
C) maximax
D) decision

Accepted Answer

The maximin criterion finds the worst-possible payoff for each alternative and then chooses the alternative that yields the maximum worst-possible payoff.

Question 4

The ________ criterion is preferred by optimistic decision makers.
A) maximax
B) maximin
C) utility theory
D) risk theory

Accepted Answer

The maximax criterion is preferred by optimistic decision makers, and it determines the best possible payoffs.

Question 5

The expected net gain of sampling equals the ________ minus the cost of sampling.
A) expected monetary value
B) expected value of perfect information
C) expected value of sampling information
D) expected net gain of sampling

Accepted Answer

The expected net gain of sampling equals the expected value of sampling information minus the cost of sampling.

Question 6

When applying Bayes' Theorem, the sample information is combined with prior probabilities to obtain ________ probabilities.
A) utility
B) maximax
C) posterior
D) preposterior

Accepted Answer

When applying Bayes' Theorem, the sample information is combined with prior probabilities to obtain posterior probabilities.

Question 7

The ________ is the difference between the expected value of sampling and the cost of sampling.
A) expected monetary value
B) expected value of perfect information
C) expected value of sample information
D) expected net gain of sampling

Accepted Answer

The expected net gain of sampling is the difference between the expected value of sampling and the cost of sampling.

Question 8

The expected ________ of a decision maker is based upon his/her attitude toward risk.
A) maximax
B) maximin
C) utility
D) risk theory

Accepted Answer

The expected utility of a decision maker is based upon his/her attitude toward risk.

Question 9

The ________ criterion finds the best-possible payoff for each alternative and then chooses the alternative that yields the maximum best-possible payoff.
A) maximin
B) certainty
C) maximax
D) decision

Accepted Answer

The maximax criterion finds the best-possible payoff for each alternative and then chooses the alternative that yields the maximum best-possible payoff.

Question 10

The ________ criterion for choosing among alternative actions assumes that the state of nature with the best payoff will be experienced.
A) maximin
B) certainty
C) maximax
D) decision

Accepted Answer

The maximax criterion for choosing among alternative actions assumes that the state of nature with the best payoff will be experienced.

Question 11

The ________ is the difference between the expected payoff that would have been realized had the best alternative action been selected if we knew which state of nature would occur and the expected payoff under risk.
A) expected monetary value
B) expected value of perfect information
C) expected value of sample information
D) expected net gain of sampling

Accepted Answer

The expected value of perfect information is the difference between the expected payoff that would have been realized had the best alternative action been selected if we knew which state of nature would occur and the expected payoff under risk.

Question 12

________ statistics is an area of statistics that uses a theorem to update prior belief about a probability or population parameter to a posterior belief.
A) Bayesian
B) Utility theory
C) Preposterior analysis
D) Risk theory

Accepted Answer

Bayesianstatistics is an area of statistics that uses a theorem to update prior belief about a probability or population parameter to a posterior belief.

Question 13

The expected value criterion is used for decision making under ________.
A) risk
B) utility
C) certainty
D) uncertainty

Accepted Answer

The expected value criterion is used for decision making under certainty.

Question 14

In a decision-making situation, the maximum amount of money that should be spent to obtain perfect information is called the ________.
A) expected monetary value
B) expected value of perfect information
C) expected value of sample information
D) expected net gain of sampling

Accepted Answer

In a decision-making situation, the maximum amount of money that should be spent to obtain perfect information is called the expected value of perfect information.

Question 15

When we assess the worth of sample information in a decision-making problem, we are performing a(n) ________ analysis.
A) utility
B) maximax
C) posterior
D) preposterior

Accepted Answer

When we assess the worth of sample information in a decision-making problem, we are performing a preposterior analysis.

Question 16

A corn farmer has categorized the weather into three possible levels. The weather conditions will affect the timing of the harvest and the associated payoff. In this situation, the weather conditions are called the ________.
A) alternatives
B) states of nature
C) payoffs
D) perfect information

Accepted Answer

Since weather conditions affect timing of the harvest and associated payoff, they are the states of nature.

Question 17

Decision makers in business organizations make most decisions in environments that involve some degree of ________.
A) risk
B) utility
C) certainty
D) uncertainty

Accepted Answer

No matter what information is given, there is always uncertainty when trying to make decisions for the future.

Question 18

The ________ criterion is preferred by pessimistic decision makers.
A) maximax
B) maximin
C) utility theory
D) risk theory

Accepted Answer

The maximin criterion is preferred by pessimistic decision makers, as it determines the worst possible payoffs.

Question 19

When making a decision in an environment of ________, the decision maker knows which of the states of nature will actually occur.
A) risk
B) utility
C) certainty
D) uncertainty

Accepted Answer

When making a decision in an environment of certainty, the decision maker knows which of the states of nature will actually occur.

Question 20

The ________ criterion for choosing among alternative actions assumes that the state of nature with the worst payoff will be experienced.
A) maximin
B) certainty
C) maximax
D) decision

Accepted Answer

The maximin criterion for choosing among alternative actions assumes that the state of nature with the worst payoff will be experienced.

Quiz 19: Decision Theory

A tire manufacturer needs to determine the amount of production for the coming month (high vs. low) . The level of production largely depends on the level of demand. For this situation, the amount of production constitutes the ________ actions.

A ________ is a diagram that assists the decision maker in analyzing a decision problem.

The ________ criterion finds the worst-possible payoff for each alternative and then chooses the alternative that yields the maximum worst-possible payoff.

The ________ criterion is preferred by optimistic decision makers.

The expected net gain of sampling equals the ________ minus the cost of sampling.

When applying Bayes' Theorem, the sample information is combined with prior probabilities to obtain ________ probabilities.

The ________ is the difference between the expected value of sampling and the cost of sampling.

The expected ________ of a decision maker is based upon his/her attitude toward risk.

The ________ criterion finds the best-possible payoff for each alternative and then chooses the alternative that yields the maximum best-possible payoff.

The ________ criterion for choosing among alternative actions assumes that the state of nature with the best payoff will be experienced.

The ________ is the difference between the expected payoff that would have been realized had the best alternative action been selected if we knew which state of nature would occur and the expected payoff under risk.

________ statistics is an area of statistics that uses a theorem to update prior belief about a probability or population parameter to a posterior belief.

The expected value criterion is used for decision making under ________.

In a decision-making situation, the maximum amount of money that should be spent to obtain perfect information is called the ________.

When we assess the worth of sample information in a decision-making problem, we are performing a(n) ________ analysis.

A corn farmer has categorized the weather into three possible levels. The weather conditions will affect the timing of the harvest and the associated payoff. In this situation, the weather conditions are called the ________.

Decision makers in business organizations make most decisions in environments that involve some degree of ________.

The ________ criterion is preferred by pessimistic decision makers.

When making a decision in an environment of ________, the decision maker knows which of the states of nature will actually occur.

The ________ criterion for choosing among alternative actions assumes that the state of nature with the worst payoff will be experienced.