Decision Analysis

Which of the following is not considered a step in the decision-making process?

• Clearly identify the problem

• Develop objectives.

• Evaluate alternatives.

• Minimize costs whenever possible.

The first step, and a key element, in the decision-making process is to

• consult a specialist

• clearly define the problem

• develop objectives

• monitor the results

In terms of decision theory, an occurrence or situation over which the decision maker has no

control is called a(n)

• decision under uncertainty

• decision tree

• state of nature

• alternative

tabular presentation that shows the outcome for each decision alternative under the various

possible states of nature is called a(n)

• isoquant table

• payback period matrix

• payoff table

• feasible region

The decision criterion that would be used by an optimistic decision maker solving a problem under

conditions of uncertainty would be the

• expected monetary value criterion

• equally likely criterion

• maximax criterion

• maximin criterion

A decision maker who uses the maximin criterion when solving a problem under conditions of uncertainty is

• an optimist

• a pessimist

• an economist

• an optometrist

Expected monetary value is most appropriate for problem solving that takes place

• when conditions are average

• when all states of nature are equally likely

• under conditions of uncertainty

• under conditions of risk

A retailer is deciding how many of a certain product to stock. The historical probability distribution

of sales for this product is 0 units, 0.2; 1 unit, 0.3; 2 units, 0.4, and 3 units, 0.1. The product costs

$8 per unit and sells for $25 per unit. The conditional value for the decision alternative "Stock 3"

and state of nature "Sell 1" is

• 1.4 units

• $1 profit

• $25 profit

• $-8 profit

Decision trees

• give more accurate solutions than decision tables

• give less accurate solutions than decision tables

• are especially powerful when a sequence of decisions must be made

• are rarely used because one needs specialized software to graph them

The expected value of perfect information is the same as the expected value with perfect information.

• True

• False