Question 1

An opportunity loss is the difference between what the decision maker's profit for an act (alternative) is and what the profit could have been had the best decision been made.

Accepted Answer

This statement accurately describes an opportunity loss.

Question 2

Worker safety laws would be considered a state of nature for a business firm.

Accepted Answer

A state of nature refers to the conditions that exist in the absence of government or other forms of authority, where individuals are free to act as they please. In a business context, this would mean that companies would be free to operate without any regulations or laws governing worker safety. Worker safety laws, therefore, represent a departure from this state of nature as they impose restrictions on how companies can operate and require them to take steps to protect the health and safety of their employees.

Question 3

Define the expected payoff with perfect information (EPPI).

Accepted Answer

The answer of Define the expected payoff with perfect information...

Question 4

Define the term payoff table.

Accepted Answer

The answer of Define the term payoff table....

Question 5

If EOL( $a _ { 1 }$ ) = $13 000, EOL( $a _ { 2 }$ ) = $25 000 and EOL( $a _ { 3 }$ ) = $20 000, then EOL* = $25 000.

Accepted Answer

The EOL* is the highest EOL value among all assets, which in this case is $25,000 for asset 2. Therefore, the statement is true.

Question 6

The expected payoff with perfect information (EPPI) represents the maximum amount a decision maker would be willing to pay for perfect information.

Accepted Answer

The answer of The expected payoff with perfect information (EPPI)...

Question 7

In general, the branches of a decision tree represent stages of events.

Accepted Answer

The branches of a decision tree generally represent the different stages of events or the different possibilities that can arise from a decision.

Question 8

Since the expected monetary value decision is always the same as the expected opportunity loss decision, then EMV*( $a _ { i }$ ) = EOL*( $a _ { i }$ ), for any alternative $a _ { i }$ .

Accepted Answer

The statement is incorrect. While EMV and EOL are related concepts, they are not always the same. EMV considers the potential monetary gain or loss of each alternative, while EOL considers the potential missed opportunity or loss of each alternative. Only in certain situations will the values be equal, such as when the opportunity cost is equal to the monetary gain/loss.

Question 9

The prior probabilities determine whether or not sample information should be purchased to revise the posterior probabilities associated with the state of nature.

Accepted Answer

The answer of The prior probabilities determine whether or not...

Question 10

Define the expected value of perfect information (EVPI).

Accepted Answer

The answer of Define the expected value of perfect information...

Question 11

Opportunity loss is the difference between what the decision maker's payoff for an act is and what the payoff would have been had the best decision been made.

Accepted Answer

Opportunity loss is often referred to as "regret" and is the difference between the best possible outcome and the actual outcome received. It is a measure of the cost of making a suboptimal decision.

Question 12

In general, the expected monetary values (EMV) do not represent possible payoffs.

Accepted Answer

EMV represents the probability-weighted average of all possible payoffs, not just the most likely one.

Question 13

Define the expected monetary value (EMV) of a decision alternative.

Accepted Answer

The answer of Define the expected monetary value (EMV) of...

Question 14

If EMV( $a _ { 1 }$ ) = $50 000, EMV( $a _ { 2 }$ ) = $65 000, and EMV( $a _ { 3 }$ ) = $45 000, then EMV* = $160 000.

Accepted Answer

EMV* is the maximum expected monetary value, which is usually calculated by adding the highest EMV of each alternative. However, in this case, the sum of the highest EMV of each alternative is $65,000 + $50,000 + $45,000 = $160,000, not $160,000. Therefore, the statement is false.

Question 15

We can use the payoff table to calculate the expected monetary value (EMV) and the expected opportunity loss (EOL) of each act (alternative).

Accepted Answer

The answer of We can use the payoff table to...

Question 16

Incentive programs for sales staff would be considered a state of nature for a business firm.

Accepted Answer

Incentive programs for sales staff are not considered a state of nature for a business firm. They are a deliberate business strategy designed to motivate and reward performance. A state of nature refers to the unpredictable and uncontrollable external factors that can impact a business, such as changes in the economy or natural disasters.

Question 17

Define expected opportunity loss, EOL.

Accepted Answer

The answer of Define expected opportunity loss, EOL....

Question 18

The objective of a preposterior analysis is to determine whether the value of the prediction is greater or less than the cost of the information.

Accepted Answer

The objective of a preposterior analysis is indeed to determine whether the value of the prediction is greater or less than the cost of the information.

Question 19

The expected value of sample information (EVSI) is the difference between the expected monetary value with additional information (EMV´)and the expected monetary value without additional information (EMV*). That is, EVSI = EMV´ - EMV*.

Accepted Answer

This is correct according to the definition of EVSI.

Question 20

In making decisions, we choose the decision with the smallest expected monetary value, or the largest expected opportunity loss.

Accepted Answer

In decision-making, we typically choose the decision with the largest expected monetary value or the smallest expected opportunity loss, not the other way around.

Quiz 25: Decision Analysis

An opportunity loss is the difference between what the decision maker's profit for an act (alternative) is and what the profit could have been had the best decision been made.

Worker safety laws would be considered a state of nature for a business firm.

Define the expected payoff with perfect information (EPPI).

Define the term payoff table.

If EOL( $a _ { 1 }$ ) = $13 000, EOL( $a _ { 2 }$ ) = $25 000 and EOL( $a _ { 3 }$ ) = $20 000, then EOL* = $25 000.

The expected payoff with perfect information (EPPI) represents the maximum amount a decision maker would be willing to pay for perfect information.

In general, the branches of a decision tree represent stages of events.

Since the expected monetary value decision is always the same as the expected opportunity loss decision, then EMV( $a _ { i }$ ) = EOL( $a _ { i }$ ), for any alternative $a _ { i }$ .

The prior probabilities determine whether or not sample information should be purchased to revise the posterior probabilities associated with the state of nature.

Define the expected value of perfect information (EVPI).

Opportunity loss is the difference between what the decision maker's payoff for an act is and what the payoff would have been had the best decision been made.

In general, the expected monetary values (EMV) do not represent possible payoffs.

Define the expected monetary value (EMV) of a decision alternative.

If EMV( $a _ { 1 }$ ) = $50 000, EMV( $a _ { 2 }$ ) = $65 000, and EMV( $a _ { 3 }$ ) = $45 000, then EMV* = $160 000.

We can use the payoff table to calculate the expected monetary value (EMV) and the expected opportunity loss (EOL) of each act (alternative).

Incentive programs for sales staff would be considered a state of nature for a business firm.

Define expected opportunity loss, EOL.

The objective of a preposterior analysis is to determine whether the value of the prediction is greater or less than the cost of the information.

The expected value of sample information (EVSI) is the difference between the expected monetary value with additional information (EMV´)and the expected monetary value without additional information (EMV). That is, EVSI = EMV´ - EMV.

In making decisions, we choose the decision with the smallest expected monetary value, or the largest expected opportunity loss.

Quiz 25: Decision Analysis

An opportunity loss is the difference between what the decision maker's profit for an act (alternative) is and what the profit could have been had the best decision been made.

Worker safety laws would be considered a state of nature for a business firm.

Define the expected payoff with perfect information (EPPI).

Define the term payoff table.

If EOL( a1a _ { 1 }a1​ ) = $13 000, EOL( a2a _ { 2 }a2​ ) = $25 000 and EOL( a3a _ { 3 }a3​ ) = $20 000, then EOL* = $25 000.

The expected payoff with perfect information (EPPI) represents the maximum amount a decision maker would be willing to pay for perfect information.

In general, the branches of a decision tree represent stages of events.

Since the expected monetary value decision is always the same as the expected opportunity loss decision, then EMV*( aia _ { i }ai​ ) = EOL*( aia _ { i }ai​ ), for any alternative aia _ { i }ai​ .

The prior probabilities determine whether or not sample information should be purchased to revise the posterior probabilities associated with the state of nature.

Define the expected value of perfect information (EVPI).

Opportunity loss is the difference between what the decision maker's payoff for an act is and what the payoff would have been had the best decision been made.

In general, the expected monetary values (EMV) do not represent possible payoffs.

Define the expected monetary value (EMV) of a decision alternative.

If EMV( a1a _ { 1 }a1​ ) = $50 000, EMV( a2a _ { 2 }a2​ ) = $65 000, and EMV( a3a _ { 3 }a3​ ) = $45 000, then EMV* = $160 000.

We can use the payoff table to calculate the expected monetary value (EMV) and the expected opportunity loss (EOL) of each act (alternative).

Incentive programs for sales staff would be considered a state of nature for a business firm.

Define expected opportunity loss, EOL.

The objective of a preposterior analysis is to determine whether the value of the prediction is greater or less than the cost of the information.

The expected value of sample information (EVSI) is the difference between the expected monetary value with additional information (EMV´)and the expected monetary value without additional information (EMV*). That is, EVSI = EMV´ - EMV*.

In making decisions, we choose the decision with the smallest expected monetary value, or the largest expected opportunity loss.

If EOL( $a _ { 1 }$ ) = $13 000, EOL( $a _ { 2 }$ ) = $25 000 and EOL( $a _ { 3 }$ ) = $20 000, then EOL* = $25 000.

Since the expected monetary value decision is always the same as the expected opportunity loss decision, then EMV( $a _ { i }$ ) = EOL( $a _ { i }$ ), for any alternative $a _ { i }$ .

If EMV( $a _ { 1 }$ ) = $50 000, EMV( $a _ { 2 }$ ) = $65 000, and EMV( $a _ { 3 }$ ) = $45 000, then EMV* = $160 000.

The expected value of sample information (EVSI) is the difference between the expected monetary value with additional information (EMV´)and the expected monetary value without additional information (EMV). That is, EVSI = EMV´ - EMV.