Probability pop quiz

States of nature are alternatives available to a decision maker.

• True

• False

Prior probabilities refer to the relative likelihood of possible states of nature.

• True

• False

A decision tree shows all of the possible decisions and all of the possible events.

• True

• False

Payoff tables can include only non-negative numbers.

• True

• False

The maximax approach is an optimistic strategy.

• True

• False

Sensitivity analysis may be useful in decision analysis, since prior probabilities may be inaccurate.

• True

• False

The EVPI indicates an upper limit in the amount a decision-maker should be willing to spend to obtain information.

• True

• False

The maximin approach involves choosing the alternative with the highest payoff.

• True

• False

Based on the following payoff table, the maximax strategy is:

• Buy

• Rent

• Lease

• High

• Low

Based on the following payoff table, the Bayes' decision rule strategy is:

• Buy

• Rent

• Lease

• High

• Low