Decision Analysis

Question 1

(T/F) Decision alternatives are structured so that several could occur simultaneously

Answer 1

False

Question 2

(T/F) EVPI is always greater than or equal to EVSI

Answer 2

True

Question 3

(T/F) After all probabilities and payoffs are placed on a decision tree, the decision maker calculates expected values at state of nature nodes and makes selections at decision nodes

Answer 3

True

Question 4

(T/F) To assign utilities, consider the best and worst payoffs in the entire decision situation

Answer 4

True

Question 5

(T/F) The utility function for a risk avoider typically shows a diminishing marginal return for money

Answer 5

True

Question 6

(T/F) A risk neutral decision maker will have a linear utility function

Answer 6

True

Question 7

The options from which a decision maker chooses a course of action are…
A) called decision alternatives
B) under the control of the decision maker
C) not the same as the states of nature
D) all of the alternatives are true

Answer 7

D

Question 8

A decision tree…
A) presents all decision alternatives first and follows them with all states of nature
B) presents all states of nature first and follows them with all decision alternatives
C) alternates the decision alternatives and states of nature
D) arranges decision alternatives and states of nature in their natural chronological order

Answer 8

D

Question 9

For a maximization problem, the conservative approach is often referred to as the...
A) minimax approach
B) maximin approach
C) maximax approach
D) minimin approach

Answer 9

B

Question 10

The approach to determine the optimal decision strategy involves…
A) a forward (left to right) pass through the decision tree
B) a backward (right to left) pass through the decision tree
C) choosing the outcome of a chance event with the greatest probability
D) choosing the outcome of a chance event with the greatest payoff

Answer 10

B