WorksheetsChapter 3 - Decision Analysis
Total questions: 15
Worksheet time: 8mins
What is the first step in the Six Steps of Decision Making?
List the alternatives
Define the problem
Apply the model
Identify payoffs
How is an “alternative” defined in the decision-making process?
An unexpected outcome
A course of action or strategy the decision maker can choose
A random external factor
A type of mathematical model
What are “states of nature,” and why are they important?
Predictable actions by decision makers
Outcomes which the decision maker has little or no control over
Government regulations
Consumer preferences
What does a payoff table typically include?
Only expenses
The timeline for each decision
Profits for each combination of alternatives and outcomes
Employee evaluations
Which step involves selecting a mathematical decision theory model?
First step
Fifth step
Second step
Last step
Which type of environment allows the decision maker to know the outcomes with certainty?
Decision making under certainty
Decision making under uncertainty
Decision making under risk
Decision making under pressure
What is the key feature of decision making under uncertainty?
There is no decision model used
Outcomes are always unfavorable
The decision maker does not know the probabilities of outcomes
Outcomes are guaranteed
What distinguishes decision making under risk?
No payoffs are estimated
Probabilities of outcomes are known
Only qualitative data is used
Assumes all outcomes are equally likely
What is the optimistic (maximax) criterion?
Select the worst possible outcome
Choose the alternative with the least regret
Select the alternative with the best possible payoff
Average all payoffs equally
What does the pessimistic (maximin) criterion focus on?
Most profitable scenario
Best of the worst outcomes
Risk-neutral assumptions
Average regrets
What does the coefficient of realism in the Hurwicz criterion represent?
Degree of optimism (between 0 and 1)
Amount of risk taken
Probability of failure
Market value
What is the equally likely (Laplace) criterion based on?
Choosing only pessimistic outcomes
Averaging all payoffs assuming equal likelihood
Choosing highest regret
Ignoring probabilities
How is opportunity loss calculated in the minimax regret criterion?
By adding all payoffs
Subtracting each payoff from the best payoff in each state of nature
Taking the average of all payoffs
Multiplying payoffs by probabilities
What does Expected Monetary Value (EMV) represent?
Most pessimistic outcome
Weighted average of all possible outcomes based on probability
Guaranteed profit
Loss-minimizing value
What is the purpose of sensitivity analysis?
Determine emotional bias in decisions
Predict future market trends
Test how changes in input affect decision outcomes
Increase sales through forecasting
