Question 1

A state of nature is an occurrence of a situation over which the decision maker has little or no control.

Accepted Answer

A state of nature is characterized by uncertainty and lack of control over external factors that may affect the outcome of a decision. It is important to account for such uncertainties in decision-making by using probabilistic techniques such as decision trees or simulation models.

Question 2

The last step in the analytic decision process clearly defines the problem and the factors that influence it.

Accepted Answer

The first step in the analytic decision process typically involves clearly defining the problem and the factors that influence it, not the last step.

Question 3

Analytic decision making is based on logic and considers all available data and possible alternatives.

Accepted Answer

Analytic decision making involves gathering and analyzing all available information, considering different alternatives, and applying logical reasoning to select the best possible course of action.

Question 4

In a decision tree,a square symbol represents a state of nature node.

Accepted Answer

In a decision tree, a square symbol represents a decision node where a decision must be made, while a circle represents a chance node or a state of nature node representing uncertain events or outcomes.

Question 5

An example of a conditional value would be the payoff from selecting a particular alternative when a particular state of nature occurs.

Accepted Answer

This is because a conditional value is dependent on the occurrence of a specific condition, which is represented by a state of nature. The payoff, or value, of selecting a certain alternative is only applicable when that state of nature happens. Therefore, the value is conditional on that event occurring.

Question 6

An example of expected monetary value would be the payoff from selecting a particular alternative when a particular state of nature occurs.

Accepted Answer

The answer of An example of expected monetary value would...

Question 7

Which of the following is not considered a step in the decision-making process?
A)Clearly identify the problem.
B)Select the best alternative.
C)Develop objectives.
D)Evaluate alternatives.
E)Minimize costs whenever possible.

Accepted Answer

Minimizing costs whenever possible is not considered a step in the decision-making process. However, it may be a consideration or goal when evaluating alternatives. The steps in the decision-making process are usually described as: clearly identifying the problem, developing objectives, generating alternative solutions, evaluating alternatives, selecting the best alternative, implementing the decision, and evaluating the outcome.

Question 8

Decision trees and decision tables can both solve problems requiring a single decision,but decision tables are the preferred method when a sequence of decisions is involved.

Accepted Answer

Decision trees are designed to handle problems with multiple decisions in a sequence, while decision tables are used for problems with a single decision.

Question 9

The first step,and a key element,in the decision-making process is to
A)consult a specialist.
B)clearly define the problem.
C)develop objectives.
D)monitor the results.
E)select the best alternative.

Accepted Answer

Clearly defining the problem is the first step in the decision-making process because without a clear understanding of the problem, it is impossible to develop objectives, select alternatives, monitor results, or consult a specialist. Defining the problem involves identifying the gap between the current situation and the desired outcome, and understanding the causes and consequences of the problem. Once the problem is clearly defined, objectives can be formulated and alternative solutions can be evaluated.

Question 10

If a decision maker can assign probabilities of occurrences to the states of nature,then the decision-making environment is Decision Making under Uncertainty.

Accepted Answer

When a decision maker can assign probabilities to the states of nature, the environment is referred to as Decision Making under Risk, not Uncertainty. In Decision Making under Uncertainty, probabilities are not known.

Question 11

A square node on a decision tree infers that
A)the node splits into various states of nature,of which only one will occur.
B)there are several alternatives available.
C)the manager must choose an alternative.
D)there are several alternatives available and the manager must choose an alternative.
E)the node splits into various states of nature,of which only one will occur,there are several alternatives available and the manager must choose an alternative.

Accepted Answer

A square node represents a decision point, indicating that the decision maker has to choose from multiple alternatives. Therefore, option D is correct, which states that there are several alternatives available and the manager must choose an alternative. Options A and E are partially correct, but they do not address the decision maker's role in selecting an alternative. Option B is incorrect as it only states that there are alternatives, without mentioning the decision maker's role. Option C is incorrect as it assumes that the decision maker has already made a choice, while the square node signifies the point at which the choice is made.

Question 12

The maximin criterion is pessimistic,while the maximax criterion is optimistic.

Accepted Answer

The maximin criterion focuses on minimizing the worst-case scenario, which is pessimistic, while the maximax criterion focuses on maximizing the best-case scenario, which is optimistic.

Question 13

The expected value of perfect information is the same as the expected value with perfect information.

Accepted Answer

The expected value of perfect information (EVPI) measures the value of having perfect information before making a decision, while the expected value with perfect information (EVwPI) calculates the best possible outcome assuming perfect information is available. EVPI is the difference between EVwPI and the expected value without perfect information (EVwoPI).

Question 14

If a decision maker knows for sure which state of nature will occur,he/she is making a decision under certainty.

Accepted Answer

When a decision maker knows for sure which state of nature will occur, they are making a decision under certainty.

Question 15

In a decision tree,the expected monetary values are computed by working from right to left.

Accepted Answer

This is correct. The expected monetary values (EMVs) of each branch on the tree are calculated starting from the right-hand side of the diagram and working backwards towards the left. This involves multiplying the known probabilities of each event by its associated payoff or cost, and summing the results to generate a set of expected values at each decision point.

Question 16

The expected monetary value of a decision alternative is the sum of all possible payoffs from the alternative,each weighted by the probability of that payoff occurring.

Accepted Answer

This is a correct definition of expected monetary value.

Question 17

The last step of the decision-making process is to
A)develop a model.
B)evaluate each alternative.
C)pick the best alternative.
D)implement the decision.
E)check the decision with senior management.

Accepted Answer

The last step of the decision-making process is to implement the decision, which means putting the chosen alternative into action. While checking the decision with senior management may be a part of the process, it is not necessarily the final step. Developing a model and evaluating each alternative are earlier steps in the process. Picking the best alternative is also an important step, but it must be followed by implementation for the decision to have any impact.

Question 18

The expected value with perfect information assumes that all states of nature are equally likely.

Accepted Answer

The expected value with perfect information assumes that the decision maker knows the exact probability of each state of nature occurring. It does not assume that all states of nature are equally likely.

Question 19

If a decision maker has to make a certain decision only once,expected monetary value is a good indication of the payoff associated with the decision.

Accepted Answer

The answer of If a decision maker has to make...

Question 20

The maximax criterion of decision making requires that all decision alternatives have an equal probability of occurrence.

Accepted Answer

The maximax criterion of decision making does not require equal probabilities for decision alternatives. It is based on selecting the alternative with the highest possible payoff, regardless of the probability of occurrence.

Quiz 21: Decision-Making Tools