Question 1

The manager of an ice-cream parlor decides to introduce a new ice-cream flavor in his Dallas,TX based restaurants to compare the sales of these restaurants to the ones with no new flavors.She decides to run a difference in difference approach.Which of the following is true?
A)​The first difference would be the difference in the sales of the Dallas stores before and after the introduction
B)The second difference would be the difference in the sales in other stores before and after the Dallas stores introduced the new flavor
C)The second difference would be the difference between the post introduction sales in the Dallas stores and the control group
D)​Only A&B

Accepted Answer

In a difference in difference approach, we compare the changes in sales in the treatment group (stores in Dallas with the new flavor) and the control group (other stores with no new flavor) before and after the introduction of the new flavor. Therefore, the first difference would be the difference in the sales of the Dallas stores before and after the introduction (A), and the second difference would be the difference in the sales in other stores before and after the Dallas stores introduced the new flavor (B). Thus, the correct answer is D (A&B). Option C is incorrect because it refers to the post-introduction sales in the Dallas stores only, without considering the sales in the control group.

Question 2

​Two important considerations during the difference-in-difference approach are
A)​Representativeness,Reflectiveness
B)Injections,Leakages
C)Representativeness,Leakages
D)​Reflectiveness,Injections

Accepted Answer

The two important considerations during the difference-in-difference approach are representativeness and leakages. Representativeness refers to the extent to which the treatment and control groups are similar in their characteristics and composition, which is necessary for a valid comparison. Leakages refer to any spillover effects or external factors that may affect the treatment group but not the control group, which can bias the results. Therefore, C is the best choice as it accurately describes the important considerations in this approach.

Question 3

You want to run a difference-in-difference experiment with a price increase for your lawn chairs in Miami,FL.If you are worried about "leakage" with your control group,a poor comparison city would be
A)​Boston,MA
B)San Francisco,CA
C)St.Paul,MN
D)​Tampa Bay,FL

Accepted Answer

Tampa Bay, FL, is geographically close to Miami, FL, increasing the likelihood of "leakage" where customers or influences from the treatment group (Miami) could affect the control group (Tampa Bay) due to their proximity. This could include customers traveling between the cities for purchases or shared media markets.

Question 4

​A "false positive" is
A)​When you incorrectly conclude that your hypothesis is true
B)When you incorrectly conclude that your hypothesis is false
C)When you correctly conclude that your hypothesis is true
D)​When you correctly conclude that your hypothesis is false

Accepted Answer

A false positive occurs when you incorrectly conclude that your hypothesis is true, meaning you have found a relationship or effect when there actually isn't one. This is a type of error in hypothesis testing.

Question 5

You want to run a difference-in-difference experiment with a price increase for the bacon cheeseburger item on your menu.If you are worried about "leakage" with your control group,a good comparison menu item would be
A)​soft drink sales
B)the bacon burger without cheese
C)the bacon-lettuce-and-tomato sandwich
D)​the regular cheeseburger

Accepted Answer

The correct comparison menu item would be a similar item that is not affected by the price increase, such as the soft drink sales.

Question 6

​We worry that false negatives occur too often relative to false positives due to
A)​Most hypotheses being false
B)It being appropriate to set a high standard for acceptance of a hypothesis
C)Managers having an incentive to make a false negative conclusion because they are harder for superiors to observe
D)​They are not too common

Accepted Answer

Managers may prefer false negatives as they are less likely to be scrutinized by superiors compared to false positives.

Question 7

​The VP in charge of product launches hypothesizes that a particular product would be profitable,then launching an unprofitable product is a
A)​Type I error
B)Type II error
C)Type III error
D)​Type IV error

Accepted Answer

A Type II error occurs when a false null hypothesis is not rejected. In this context, the hypothesis is that the product would be profitable, and launching an unprofitable product means failing to reject the false hypothesis, which is a Type II error.

Question 8

You put your product on 20% off sale market A but leave it unchanged in market B.Sales in A increase from 840 to 1040 units per week while sales in B rise from 770 to 830.The Difference-in-difference estimate of the effect of the price change is:
A)​80 units
B) 
100 units
C)120 units
D)​130 units

Accepted Answer

The difference-in-difference estimate is calculated by taking the difference in sales increase between the two markets and adjusting for the natural sales increase in the control market (B). Market A's sales increased by 200 units (1040 - 840), and Market B's sales increased by 60 units (830 - 770). The difference-in-difference estimate is 200 - 60 = 140 units, indicating an error in the provided options. However, based on the closest match to the correct calculation, the intended answer might be D) 130 units, acknowledging a possible typo or calculation error in the question or choices.

Question 9

​A movie producer has to decide to fund a new movie project.For this project,a success would earn $20 million and a failure would cost $60 million in lost profits. At what probability of expected success should he fund the movie?
A)​0.20
B)0.25
C)0.50
D)​0.75

Accepted Answer

The expected value of funding this project can be calculated as follows:
Expected Value = (Probability of Success x Potential Profit) - (Probability of Failure x Potential Loss)
Let x be the probability of success
Expected Value = (x * $20 million) - ((1-x) * $60 million)
Simplifying this expression:
Expected Value = 80x - 60
The producer should fund the movie only if the expected value is positive. 
80x - 60 > 0
80x > 60
x > 0.75
Therefore, the producer should fund the movie if there's a probability of expected success greater than 0.75 or 75%.

Hence, the best choice is D) 0.75.

Question 10

​A manager may over-research the appropriateness of a decision
A)​Because the costs of a false positive are usually larger
B)Because the costs of a false negative are usually larger
C)Because it is important to be 100% certain before making a decision
D)​Because managers can face inordinate censure from agreeing to a bad decision

Accepted Answer

The answer of ​A manager may over-research the appropriateness of...

Question 11

You decrease your product price by $10 in market A but leave it unchanged in market B.Sales in A rise from 840 units per week to 940 while sales in B also rise from 770 to 790.The difference-in-difference estimate of the effect of the price change is:
A)​80 units
B)100 units
C)120 units
D)​140 units

Accepted Answer

The difference-in-difference estimate is calculated by comparing the change in sales in market A to the change in sales in market B. Market A's sales increased by 100 units (940-840), and market B's sales increased by 20 units (790-770). The difference-in-difference is 100 - 20 = 80 units.

Question 12

​A pharmaceutical company executive has to decide whether to fund a new drug development project.For this project,a success would earn $90 million and a failure would cost $10 million in lost profits. At what probability of expected success should she fund the project?
A)​0.10
B)0.20
C)0.80
D)​0.90

Accepted Answer

The answer of ​A pharmaceutical company executive has to decide...

Question 13

You want to run a difference-in-difference experiment with a price increase for your lawn chairs in Miami,FL.If you are worried about the "representativeness" of your control group,a good comparison city would be
A)​Boston,MA
B)San Francisco,CA
C)St.Paul,MN
D)​Tampa Bay,FL

Accepted Answer

A good comparison city for a price increase on lawn chairs in Miami, FL would be another city in Florida to control for regional factors such as weather, consumer preferences, and competitive environment. St. Paul, MN is too far away and not geographically comparable, while Boston, MA and San Francisco, CA are in different regions with different economic and demographic characteristics. Therefore, Tampa Bay, FL is the closest and most suitable comparison city for this experiment.

Question 14

You want to run a difference-in-difference experiment with a price increase for the bacon cheeseburger item on your menu.If you are worried about the "representativeness" with your control group,a poor comparison menu item would be
A)​soft drink sales
B)the bacon burger without cheese
C)the bacon-lettuce-and-tomato sandwich
D)​the regular cheeseburger

Accepted Answer

Soft drink sales are a poor comparison for a bacon cheeseburger price increase experiment due to their different product categories. Food items, especially those closely related to the test item like other burgers, are more representative controls than beverages.

Question 15

​Type II errors are
A)​False negatives
B)False positives
C)True negatives
D)​True positives

Accepted Answer

Type II errors occur when we fail to reject a null hypothesis that is actually false. In other words, we incorrectly accept the null hypothesis when in fact the alternative hypothesis is true. This is also known as a false negative, as we have failed to detect a true effect or difference.

Question 16

​Which types of poor decisions are more visible to a decision maker's supervisor?
A)​Agreeing to undertake an unprofitable project
B)Deciding not to undertake a profitable project
C)Deciding not to undertake an unprofitable project
D)​Deciding to investigate a proposed project until one is certain

Accepted Answer

Agreeing to undertake an unprofitable project is more visible to a decision maker's supervisor because it will result in a loss for the company which will be noticed by upper management. B and C may not be as noticeable as they do not directly impact the company's bottom line. D is a responsible decision and may even be encouraged by the supervisor, so it may not necessarily be more visible as a poor decision.

Question 17

You experiment by offering free warranties for your product in market A but not in market B.Sales in A rise from 240 to 360 units per week while sales in B rise from 410 to 430.The Difference-in-difference estimate of the effect of the free warranty is:
A)​80 units
B)100 units
C)120 units
D)​140 units

Accepted Answer

The answer of You experiment by offering free warranties for...

Question 18

​Type I errors are
A)​False negatives
B)False positives
C)True negatives
D)​True positives

Accepted Answer

Type I errors are false positives, which means that a test or experiment concludes that there is a significant effect or difference when in reality there isn't. In other words, the null hypothesis is rejected even though it is true.

Question 19

You increase the advertising intensity for your product in market A but not in market B.Sales in A rise from 1140 to 1180 units per week while sales in B fall from 1270 to 1230.The Difference-in-difference estimate of the effect of the increased advertising is:
A)​0 units
B)80 units
C)100 units
D)​120 units

Accepted Answer

The difference-in-difference estimate is calculated by comparing the change in sales in market A to the change in sales in market B. Market A's sales increased by 40 units (1180 - 1140), while market B's sales decreased by 40 units (1230 - 1270). The difference-in-difference is 40 - (-40) = 80 units.

Question 20

​A "false negative" is
A)​When you incorrectly conclude that your hypothesis is true
B)When you incorrectly conclude that your hypothesis is false
C)When you correctly conclude that your hypothesis is true
D)​When you correctly conclude that your hypothesis is false

Accepted Answer

A false negative occurs when a test or experiment incorrectly concludes that the hypothesis is false, when in fact it is true. This means that the result is negative when it should actually be positive.

Quiz 15: Making Decisions With Uncertainty

The manager of an ice-cream parlor decides to introduce a new ice-cream flavor in his Dallas,TX based restaurants to compare the sales of these restaurants to the ones with no new flavors.She decides to run a difference in difference approach.Which of the following is true?

​Two important considerations during the difference-in-difference approach are

You want to run a difference-in-difference experiment with a price increase for your lawn chairs in Miami,FL.If you are worried about "leakage" with your control group,a poor comparison city would be

​A "false positive" is

You want to run a difference-in-difference experiment with a price increase for the bacon cheeseburger item on your menu.If you are worried about "leakage" with your control group,a good comparison menu item would be

​We worry that false negatives occur too often relative to false positives due to

​The VP in charge of product launches hypothesizes that a particular product would be profitable,then launching an unprofitable product is a

You put your product on 20% off sale market A but leave it unchanged in market B.Sales in A increase from 840 to 1040 units per week while sales in B rise from 770 to 830.The Difference-in-difference estimate of the effect of the price change is:

​A movie producer has to decide to fund a new movie project.For this project,a success would earn $20 million and a failure would cost $60 million in lost profits. At what probability of expected success should he fund the movie?

​A manager may over-research the appropriateness of a decision

You decrease your product price by $10 in market A but leave it unchanged in market B.Sales in A rise from 840 units per week to 940 while sales in B also rise from 770 to 790.The difference-in-difference estimate of the effect of the price change is:

​A pharmaceutical company executive has to decide whether to fund a new drug development project.For this project,a success would earn $90 million and a failure would cost $10 million in lost profits. At what probability of expected success should she fund the project?

You want to run a difference-in-difference experiment with a price increase for your lawn chairs in Miami,FL.If you are worried about the "representativeness" of your control group,a good comparison city would be

You want to run a difference-in-difference experiment with a price increase for the bacon cheeseburger item on your menu.If you are worried about the "representativeness" with your control group,a poor comparison menu item would be

​Type II errors are

​Which types of poor decisions are more visible to a decision maker's supervisor?

You experiment by offering free warranties for your product in market A but not in market B.Sales in A rise from 240 to 360 units per week while sales in B rise from 410 to 430.The Difference-in-difference estimate of the effect of the free warranty is:

​Type I errors are

You increase the advertising intensity for your product in market A but not in market B.Sales in A rise from 1140 to 1180 units per week while sales in B fall from 1270 to 1230.The Difference-in-difference estimate of the effect of the increased advertising is:

​A "false negative" is

Two important considerations during the difference-in-difference approach are

A "false positive" is

We worry that false negatives occur too often relative to false positives due to

The VP in charge of product launches hypothesizes that a particular product would be profitable,then launching an unprofitable product is a

A movie producer has to decide to fund a new movie project.For this project,a success would earn $20 million and a failure would cost $60 million in lost profits. At what probability of expected success should he fund the movie?

A manager may over-research the appropriateness of a decision

A pharmaceutical company executive has to decide whether to fund a new drug development project.For this project,a success would earn $90 million and a failure would cost $10 million in lost profits. At what probability of expected success should she fund the project?

Type II errors are

Which types of poor decisions are more visible to a decision maker's supervisor?

Type I errors are

A "false negative" is