Question 1

ABC operates a factory in the United Kingdom.Because the company's existing factory doesn't have the capacity to meet the future demands,it is considering various options.Consider the payoff matrix that shows the payoff for each combination of decision and state of nature.Determine the best alternative using the Laplace criterion solution.Assume equal likelihood for low demand and high demand.  
A)Expand current facility.
B)Build small factory.
C)Build large factory.
D)Determine a new alternative.

Accepted Answer

The answer of ABC operates a factory in the United...

Question 2

______ is the expected value of regret associated with each decision.
A)Expected value of perfect information
B)Expected regret
C)Expected loss
D)Expected value

Accepted Answer

Expected regret is the expected value of the difference between the best possible outcome and the actual outcome of a decision. It takes into account the probabilities of all possible outcomes and the decision maker's preferences for those outcomes. The decision maker aims to minimize expected regret.

Question 3

In Hurwicz criterion,coefficient α's mirror image (1-α)is called the ______.
A)coefficient of realism
B)coefficient of pessimism
C)coefficient of payoff
D)coefficient of regret

Accepted Answer

The coefficient α represents the decision maker's attitude towards risk, while (1-α) represents the attitude towards pessimism. Therefore, the mirror image of α is known as the coefficient of pessimism.

Question 4

Laplace criterion is an approach to solving problems under which of the following conditions?
A)decision-making under certainty
B)decision-making under uncertainty
C)decision-making under risk
D)decision-making under regret

Accepted Answer

The Laplace criterion is used for decision-making under uncertainty, where the probabilities of outcomes are not known. It suggests that one should consider all possible outcomes of a decision to be equally likely and choose the option with the highest average payoff.

Question 5

A company is planning to build a new facility in a foreign country,and the success or failure of this venture depends on the demand for the products produced at the facility.It estimates that there is a 70% probability of high demand for the products and a 30% probability of low demand.This is an example of ______.
A)decision under certainty
B)decision under uncertainty
C)decision under state of nature
D)decision under risk

Accepted Answer

This is an example of decision under risk, where there are multiple possible outcomes with different probabilities. The company has estimated the probability of high and low demand and can make a decision based on this information, but there is still uncertainty involved.

Question 6

ABC operates a factory in the United Kingdom.Because the company's existing factory doesn't have the capacity to meet the future demands,it is considering various options.Consider the payoff matrix that shows the payoff for each combination of decision and state of nature.Determine the best alternative,given that the demand will be high.  
A)Expand current facility
B)Build small factory
C)Build large factory
D)Determine a new alternative

Accepted Answer

The answer of ABC operates a factory in the United...

Question 7

Which of the following is a decision-making approach used when the decision maker is optimistic about the future events and their outcomes,identifies the maximum payoff associated with each decision,and chooses the maximum of the maximum payoffs?
A)maximax criterion
B)Laplace criterion
C)maximin criterion
D)minimax regret criterion

Accepted Answer

The maximax criterion is used when the decision maker is optimistic about the future events and their outcomes, and aims to identify the maximum payoff associated with each decision. The decision maker chooses the maximum of the maximum payoffs, which is the most optimistic approach to decision making.

Question 8

Which of the following is a decision-making approach a person uses when the negative impact of making the wrong decision is so high that he or she chooses that alternative that guarantees at least the minimum payoff?
A)maximax criterion
B)Laplace criterion
C)maximin criterion
D)minimax regret criterion

Accepted Answer

The maximin criterion is the decision-making approach where the decision-maker evaluates the worst possible outcome of each alternative and then chooses the alternative that offers the best of these worst outcomes. This approach is used when the negative impact of making the wrong decision is very high, ensuring at least the minimum acceptable payoff.

Question 9

ABC operates a factory in the United Kingdom.Because the company's existing factory doesn't have the capacity to meet the future demands,it is considering various options.Consider the payoff matrix that shows the payoff for each combination of decision and state of nature.Determine the best alternative,given that the demand will be low.  
A)Expand current facility.
B)Build small factory.
C)Build large factory.
D)Determine a new alternative.

Accepted Answer

When demand is low, the best option is to Expand current facility as it has the highest payoff of \$4 million compared to the other options. Building a small factory gives a payoff of \$3 million which is \$1 million less than expanding the current facility. Building a large factory has a negative payoff of \$4 million which is the worst option when demand is low. Therefore, the best alternative is to expand the current facility.

Question 10

In Hurwicz criterion,the coefficient α is often called the ______.
A)coefficient of realism
B)coefficient of pessimism
C)coefficient of payoff
D)coefficient of regret

Accepted Answer

The coefficient α in the Hurwicz criterion is often called the coefficient of realism because it represents a weighted average of the best and worst outcomes, reflecting a balance between optimism and pessimism.

Question 11

In the Hurwicz equation,Hi = α x (maximum payoff)+ (1-α)x (minimum payoff); if we set α = 0,then the equation reduces to ______.
A)maximin criterion
B)maximax criterion
C)Laplace criterion
D)minimax regret criterion

Accepted Answer

If we set α = 0 in the Hurwicz equation, then the equation reduces to Hi = (minimum payoff), which is the maximin criterion. Therefore, the correct answer is (A) maximin criterion.

Question 12

Which of the following is a decision-making approach that attempts to find a compromise between the two extremes posed by the pessimistic maximin criterion and the optimistic maximax criterion by applying a certain percentage weight (α)to the most optimistic outcome,and (1-α)to the most pessimistic outcome.
A)maximax criterion
B)Laplace criterion
C)maximin criterion
D)Hurwicz criterion

Accepted Answer

The approach described in the question is the Hurwicz criterion, which involves a weighted average of the best and worst possible outcomes. The weight is determined by the decision maker's level of optimism or pessimism and is represented by the parameter α. Therefore, the best choice is D, the Hurwicz criterion.

Question 13

Which of the following is a decision-making approach that attempts to minimize the regret,or loss,associated with making a nonoptimal decision?
A)maximax criterion
B)Laplace criterion
C)maximin criterion
D)minimax regret criterion

Accepted Answer

The minimax regret criterion attempts to minimize the potential regret or loss associated with making a nonoptimal decision. It is based on the assumption that decision makers are more sensitive to losses than to gains. This approach involves identifying the worst-case scenario for each alternative and choosing the alternative with the smallest maximum regret.

Question 14

______ is the weighted average of the values of all possible outcomes of the decision,or the average payoff that would be realized if the decision were to be repeated many times.
A)Expected value of perfect information
B)Expected regret
C)Expected loss
D)Expected value

Accepted Answer

Expected value is the most appropriate choice as it represents the average payoff that would be realized if the decision were to be repeated many times while considering the weighted average of all possible outcomes. Expected value of perfect information (A) refers to the maximum value of the expected value if perfect information were available to make the decision. Expected regret (B) refers to the difference between the expected payoff of the best decision and the actual payoff of the chosen decision. Expected loss (C) refers to the average amount of loss that would be incurred with a decision.

Question 15

ABC operates a factory in the United Kingdom.Because the company's existing factory doesn't have the capacity to meet the future demands,it is considering various options.Consider the payoff matrix that shows the payoff for each combination of decision and state of nature.Determine the best alternative using the maximin criterion. 
A)Expand current facility.
B)Build small factory.
C)Build large factory.
D)Determine a new alternative.

Accepted Answer

The answer of ABC operates a factory in the United...

Question 16

Which of the following is a decision-making approach used when the probabilities of the states of nature are unknown,assumed as equal,and the different decision alternatives should be evaluated using the expected value of their payoffs?
A)maximax criterion
B)Laplace criterion
C)maximin criterion
D)Hurwicz criterion

Accepted Answer

The Laplace criterion assumes equal probabilities for all states of nature and calculates the expected value of each decision alternative's payoffs. This approach is useful when there is no reliable data available on the probability of different states of nature.

Question 17

______ is the difference between the expected value of the decision with perfect information and the expected value of the decision without perfect information.
A)Expected value of perfect information
B)Expected regret
C)Expected loss
D)Expected value

Accepted Answer

The Expected Value of Perfect Information (EVPI) quantifies the difference between the expected outcomes under perfect information and the expected outcomes with the current state of information, essentially measuring the value of having complete foresight in decision-making.

Question 18

ABC operates a factory in the United Kingdom.Because the company's existing factory doesn't have the capacity to meet the future demands,it is considering various options.Consider the payoff matrix that shows the payoff for each combination of decision and state of nature.Determine the best alternative using the maximax criterion.  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { State of Nature }$
$\begin{array}{|c|c|c|}
\hline \text { Decision Alte rnatiye } & \text { Low Demand } & \text { High Demand } \
\hline \text { Expand current facility } & \$ 4 \text { million } & \$ 5 \text { million } \
\hline \text { Build small factory } & \$ 3 \text { million } & \$ 5.5 \text { million } \
\hline \text { Build large factory } & -\$ 4 \text { million } & \$ 10 \text { million } \
\hline
\end{array}$
A)Expand current facility.
B)Build small factory.
C)Build large factory.
D)Determine a new alternative.

Accepted Answer

The maximax criterion involves choosing the option with the highest possible payoff, regardless of the state of nature. In this case, building a large factory has the highest potential payoff of $10 million under high demand, making it the best choice according to the maximax criterion.

Question 19

In the Hurwicz equation,Hᵢ = α x (maximum payoff)+ (1-α)x (minimum payoff); if we set α = 1,then the equation reduces to ______.
A)maximin criterion
B)maximax criterion
C)Laplace criterion
D)minimax regret criterion

Accepted Answer

When α = 1, the Hurwicz equation becomes Hᵢ = 1 x (maximum payoff) + (1-1) x (minimum payoff), which simplifies to just considering the maximum payoff. This approach, focusing solely on the maximum possible payoff, is known as the maximax criterion.

Question 20

If the payoffs are in monetary terms,the expected value of the payoffs is often referred to as ______.
A)expected profit value (EPV)
B)expected loss value (ELV)
C)expected returns value (ERV)
D)expected monetary value (EMV)

Accepted Answer

The expected value of payoffs in monetary terms is referred to as expected monetary value (EMV). This is the sum of the products of each possible payoff and its probability of occurring. It is often used in decision making to determine the most rational choice based on the expected payoff.

Quiz 29: Decision-Making Tools

______ is the expected value of regret associated with each decision.

In Hurwicz criterion,coefficient α's mirror image (1-α) is called the ______.

Laplace criterion is an approach to solving problems under which of the following conditions?

Which of the following is a decision-making approach used when the decision maker is optimistic about the future events and their outcomes,identifies the maximum payoff associated with each decision,and chooses the maximum of the maximum payoffs?

Which of the following is a decision-making approach a person uses when the negative impact of making the wrong decision is so high that he or she chooses that alternative that guarantees at least the minimum payoff?

In Hurwicz criterion,the coefficient α is often called the ______.

In the Hurwicz equation,Hi = α x (maximum payoff) + (1-α) x (minimum payoff) ; if we set α = 0,then the equation reduces to ______.

Which of the following is a decision-making approach that attempts to minimize the regret,or loss,associated with making a nonoptimal decision?

______ is the weighted average of the values of all possible outcomes of the decision,or the average payoff that would be realized if the decision were to be repeated many times.

Which of the following is a decision-making approach used when the probabilities of the states of nature are unknown,assumed as equal,and the different decision alternatives should be evaluated using the expected value of their payoffs?

______ is the difference between the expected value of the decision with perfect information and the expected value of the decision without perfect information.

In the Hurwicz equation,Hᵢ = α x (maximum payoff) + (1-α) x (minimum payoff) ; if we set α = 1,then the equation reduces to ______.

If the payoffs are in monetary terms,the expected value of the payoffs is often referred to as ______.