Module 3 Flashcards
(18 cards)
In the decision-making process, opportunity loss, or regret, occurs when:
The optimal course of action is not adopted
A pay-off is a(n) __________ value in the sense that associated with each course of action is a certain profit/loss.
conditional
Tom is faced with a situation in which he must make a decision. Which of the following best describes the ORDER of the steps of the decision making process Tom should use to come to a decision.
Identify the outcomes, identify the courses of action, determine they pay-off function and then choose from the alternatives
The decision situations wherein the decision-maker chooses to consider several possible outcomes and the probabilities of their occurrence can be stated are called _____________.
Decisions under risk
What is the name for a solution that is obtained by working backwards, from right to left, through a decision tree?
rollback technique
This principle is adopted by pessimistic decision-makers who are most conservative in their approach.
Maximin or Minimax principle
According to the text, which of the following is a recommended method of evaluating the best course of action in a multi-stage decision-making problem?
creating a decision tree
Which of the following determines optimal strategies when a decision maker is faced with several different alternatives and a risky pattern of future events?
Decision theory
The ___________ principle of decision-making stipulates that a decision-maker’s view is usually extreme optimism.
Maximax or Minimin Principle
Factors to consider when selecting criteria for decision rules include
I. The decision maker’s attitude
II. The nature of the situation
I and II
Decision Theory:
I. provides the framework for decision-making when conditions are certain.
II. determines optimal strategies when faced with several alternatives and a risky pattern of future events.
II Only
Requirements for using a Payoff Matrix include all of the following except:
Must result in a sequence of decisions
The LaPlace Principle
treats certain events as equally probable
The Expectation Theory:
I. is the best method for making decisions currently available
II. is seldom used by organizations
I only
What is one weakness of the maximum likelihood principle?
It ignores other available information, such as other possible events and their consequences
A resort hotel has $20,000,000 to invest it its next location. There are three potential sites for the expansion. The cost to build the facility in any of the locations is $20,000,000. Which location should be selected?
Location A:
Probability / Outcome
.50 / 20%
.30 / 9%
.20 / -10%
Location B:
Probability / Outcome
.40/ 19%
.32 / 7.5%
.28 / -11%
Location C:
Probability / Outcome
.45 / 22%
.50 / 6%
.05 / -15%
Location C
Probability x Outcome
Add them up
The World Phone, Inc. currently has $100,000 to invest in new technology for the firm. There are three possible technologies the firm can invest in. Which of the following should The World Phone pursue?
Investment A
Probability / Outcome
.40 / 15%
.35 / 10%
.25 / -7.5%
Investment B
Probability / Outcome
.60 / 10%
.30 / 20%
.10 / -5%
Investment C
Probability / Outcome
.50 / 15%
.20 / 10%
.30 / -5%
Investment B
Probability x Outcome
Add them up
Apple, Inc. has three choices of which new technologies to acquire for the development of its new MacBook Pro display. Which of the following should Apple pursue?
Investment A
Probability / Outcome
.35 / 25%
.33 / 20%
.32 / -10%
Investment B
Probability / Outcome
.65 / 20%
.20 / 12%
.15 / -7.5%
Investment C
Probability / Outcome
.70 / 15%
.20 / 25%
.10 / -4%
Investment C
Probability x Outcome
Add them up
