Final Review

Sensitivity analysis

• considers how sensitive the decision maker is to risk.

• considers how changes in the number of states of nature can impact the recommended decision.

• considers how changes in various aspects of the problem affect the recommended decision alternative.

• None of these are correct.

The difference between the expected value of an optimal strategy based on sample information and the "best" expected value without any sample information called the

• Information sensitivity.

• expected value of sample information.

• expected value of perfect information.

• efficiency of sample information.

Decision alternatives are structured so that several could occur simultaneously.

• True

• False

A payoff

• is always measured in profit

• is always measured in cost

• exists for each pair of a decision alternative and a state of nature

• exists for each state of nature

In an influence diagram, decision nodes are represented by

• Circles or ovals

• Squares or rectangles

• Diamonds

• Triangles

The operations manager for a water taxi company wants to decide whether to purchase a small, medium, or large new boat for the company. The manager estimates that the annual profits (in $000) will vary depending upon whether passenger demand is low, moderate, or high, as follows. What is the expected annual profit for the boat that the company will decide to purchase using Bayes' theorem?

• $15,000

• $50,000

• $72,000

• $93,000

The efficiency of sample information is

• E = EVSI x 100

• E = (EVSI / EVPI) x 100

• EVSI = |EVwSI - EVwoPI| x 100

• EVSI = |EVwSI - EVwoSI| x 100

Refer to the following payoff table. There is an option of paying $100 to have research conducted to better predict which state of nature will occur. When the true state of nature is S1, the research will accurately predict S1 60% of the time. When the true state of nature is S2, the research will accurately predict S2 80% of the time.

Given that the research is conducted, what is the joint probability that the state of nature is S2 and the research predicts S2?

• 0.08

• 0.16

• 0.24

• 0.32

• 0.36

If P(high) = 0.3, P(low) = 0.7, P(favorable | high) = 0.9, and P(unfavorable | low) = 0.6, then what is P(favorable)?

• 0.10.

• 0.27.

• 0.30.

• 0.55.

To find the expected value of sample information (EVSI), use

• prior and sample information probabilities to calculate revised probabilities.

• indicator probabilities to calculate prior probabilities.

• sample information to revise the sample information probabilities.

• perfect information to revise sample information probabilities.