Question 1

In folding back a decision tree,one works from left to right.

Accepted Answer

In folding back a decision tree, one works from right to left.

Question 2

When is decision analysis most useful?
A)For decisions that are not complex
B)For decisions that are complex
C)For decision that affect only one functional area of an organization
D)For decisions that are made in an environment of certainty

Accepted Answer

Decision analysis is most useful for decisions that are complex, involving multiple variables and potential outcomes. It allows decision makers to break down complex decisions into smaller, more manageable parts and systematically evaluate each option based on a set of criteria. For simple or straightforward decisions, other decision-making tools such as intuition or rule-of-thumb may be more appropriate.

Question 3

In conducting sensitivity analysis in a decision tree,the probability that is solved for is the value that would make one alternative much more preferable than the other alternative.

Accepted Answer

Sensitivity analysis in a decision tree examines how changes in input variables affect the outcome, but it does not specifically solve for a probability that makes one alternative much more preferable. Instead, it identifies thresholds where decision preferences might change.

Question 4

Decision trees are helpful in visually structuring the problem and seeing all the possible sequences of events.

Accepted Answer

Decision trees can be used to visually display a problem and illustrate all possible outcomes and sequences of events. This can help with analysis and decision-making.

Question 5

A decision tree is shown below where the expected value of alternative 1 is known to be 400.  After folding back the decision tree,you conclude that you should choose alternative 1 over alternative 2.

Accepted Answer

The answer of A decision tree is shown below where...

Question 6

In conducting sensitivity analysis for a probability in a decision tree,where there are only two alternatives,you solve to find the probability where the expected values of the two alternatives are equal to one another.

Accepted Answer

This statement is true. In conducting sensitivity analysis, the goal is to determine the point at which the expected values of two alternatives are equal. This is often referred to as the crossover point or indifference point. At this point, the decision maker is indifferent between the two alternatives, since they have the same expected value.

Question 7

Assume that you need to choose between two alternatives and know that the expected value for A₁ is 400,as shown in the decision tree below. You want to determine how sensitive the choice between the two alternatives is to the probability of S₁ occurring.In conducting sensitivity analysis on the probability of S₁,the probability value that you would find is p = 0.5.

Accepted Answer

The answer of Assume that you need to choose between...

Question 8

Assume that you have a riding lawn mower that is in need of repairs.You can choose to repair or replace it.You are interested in your net cost over the next two years.If you choose to repair,it will cost $300 and there is a 50/50 chance of whether or not it will need additional repairs within the next two years.If it does need additional repairs,there is a 40 percent chance of needing another $400 of repairs,and a 60 percent chance of needing another $200 of repairs.At the end of the two years you estimate that the repaired mower would be worthless.
If you choose to replace the mower by trading in the old mower,the cost after deducting the trade in value is $1500.At the end of the two years you estimate there is a 75 percent chance you could resell it for $1000,and a 25 percent chance that you can resell it for $1300.
After constructing the decision tree and folding it back you should choose to repair the mower because the expected value is a cost of $140.

Accepted Answer

The expected cost of repairing the mower is higher than $140. The expected cost of replacing the mower is lower due to the potential resale value. Therefore, the decision to repair based on an expected cost of $140 is incorrect.

Question 9

Assume that you have a riding lawn mower that is in need of repairs.You can choose to repair or replace it.You are interested in your net cost over the next two years.If you choose to repair,it will cost $300 and there is a 50/50 chance of whether or not it will need additional repairs within the next two years.If it does need additional repairs,there is a 40 percent chance of needing another $400 of repairs,and a 60 percent chance of needing another $200 of repairs.At the end of the two years you estimate that the repaired mower would be worthless.
If you choose to replace the mower by trading in the old mower,the cost after deducting the trade in value is $1500.At the end of the two years you estimate there is a 75 percent chance you could resell it for $1000,and a 25 percent chance that you can resell it for $1300.
After drawing the tree and folding back,the expected value of replacing the mower (by trading in)is a cost of $425.

Accepted Answer

The expected value of replacing the mower (by trading in) is a cost of $425.

Question 10

In using a decision tree,future decisions have no influence on the current decision.

Accepted Answer

The answer of In using a decision tree,future decisions have...

Question 11

A decision tree can show only one decision and outcome combination.

Accepted Answer

A decision tree can show multiple decision and outcome combinations by branching out into various paths based on different decisions and potential outcomes.

Question 12

Which of the following is true regarding decision making environments?
A)Most business decisions are made in an environment of uncertainty.
B)Most business decisions are made in an environment of certainty.
C)Certainty means that probabilities of each possible outcome are known.
D)Uncertainty means that probabilities of each possible outcome are known.

Accepted Answer

Most business decisions are made in an environment of uncertainty, where the probabilities of potential outcomes are not known. Only in rare cases, decision-makers have complete knowledge and a high degree of certainty about the outcomes of their decisions.

Question 13

The goal of decision analysis is to:
A)always get the best possible outcome.
B)make good decisions that guarantee the best outcome.
C)use probabilistic criteria.
D)make good decisions that in the long run increase the number of good outcomes.

Accepted Answer

Decision analysis aims to make informed decisions that improve the likelihood of favorable outcomes over time, rather than guaranteeing the best outcome every time.

Question 14

Which of the following is not a factor affecting the complexity of a decision?
A)The number of alternatives
B)The number of possible outcomes
C)The values of the various payoffs
D)The general level of uncertainty

Accepted Answer

The values of the various payoffs do not inherently affect the complexity of a decision; rather, they influence the desirability or preference of outcomes. Complexity is more about the number of alternatives, outcomes, and the level of uncertainty involved.

Question 15

To "fold back" the decision tree means to show the events and outcomes in the reverse order.

Accepted Answer

"Folding back" a decision tree refers to the process of analyzing the tree from the end (leaves) to the beginning (root) to determine the optimal decision path, not reversing the order of events and outcomes.

Question 16

In a decision tree,the decision maker can choose the desired branch at all branch points.

Accepted Answer

In a decision tree, the branches are determined by the data and the algorithm's criteria, not by the decision maker's choice.

Question 17

In a decision tree the sum of all probabilities in the tree must be equal to 1.0.

Accepted Answer

In a decision tree, probabilities at each node represent the likelihood of reaching that node, but they do not sum to 1 across the entire tree. Each path from root to leaf sums to 1.

Question 18

Sensitivity analysis for a decision tree involves analyzing how sensitive decisions are to the probability values used.

Accepted Answer

Sensitivity analysis for a decision tree involves analyzing the impact of changes in probability values on the decision outcomes, thus it assesses how sensitive decisions are to the input probabilities.

Question 19

At each branch point in a decision tree,where the decision maker does not have control,the probabilities must sum to 1.0.

Accepted Answer

This is because at each branch point, the decision maker is faced with mutually exclusive options, and the probability of each option must be accounted for. Therefore, the sum of the probabilities of all options must equal 1.0.

Question 20

Assume that you have a riding lawn mower that is in need of repairs.You can choose to repair or replace it.You are interested in your net cost over the next two years.If you choose to repair,it will cost $300 and there is a 50/50 chance of whether or not it will need additional repairs within the next two years.If it does need additional repairs,there is a 40 percent chance of needing another $400 of repairs,and a 60 percent chance of needing another $200 of repairs.At the end of the two years you estimate that the repaired mower would be worthless.
If you choose to replace the mower by trading in the old mower,the cost after deducting the trade in value is $1500.At the end of the two years you estimate there is a 75 percent chance you could resell it for $1000,and a 25 percent chance that you can resell it for $1300.
After drawing out the decision tree from situation above,there will be a total of three branching points including the initial decision.

Accepted Answer

The answer of Assume that you have a riding lawn...

Quiz 19: Introduction to Decision Analysis

In folding back a decision tree,one works from left to right.

When is decision analysis most useful?