190 Ch 4
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1. 1. The options from which a
decision maker chooses a course
of action are
a. called the decision alternatives.
b. under the control of the
decision maker.
c. not the same as the states of
nature.
d. All of the alternatives are true.
2. 3. A payoff
a. is always measured in profit.
b. is always measured in cost.
c. exists for each pair of decision
alternative and state of nature.
d. exists for each state of nature.
3. 4. Making a good decision
a. requires probabilities for all
states of nature.
b. requires a clear understanding
of decision alternatives, states of
nature, and payoffs.
c. implies that a desirable outcome
will occur.
d. All of the alternatives are true.
4. 5. A decision tree
a. presents all decision
alternatives first and follows them
with all states of nature.
b. presents all states of nature
first and follows them with all
decision alternatives.
c. alternates the decision
alternatives and states of nature.
d. arranges decision alternatives
and states of nature in their
natural chronological order.
5. 6. Which of the methods for
decision making without
probabilities best protects the
decision maker from undesirable
results?
a. the optimistic approach
b. the conservative approach
c. minimum regret
d. minimax regret
d (All of the 6.
alternatives are true.)
c (exists for each pair 7.
of decision alternative
and state of nature.)
b (requires a clear
understanding of
decision alternatives,
states of nature, and
payoffs.)
8.
d (arranges decision
alternatives and states
of nature in their natural
chronological order.)
9.
10.
b (the conservative
approach)
7. Sensitivity analysis considers c (changes in the values of
the payoffs.)
a. how sensitive the decision
maker is to risk.
b. changes in the number of
states of nature.
c. changes in the values of the
payoffs.
d. changes in the available
alternatives.
8. To find the EVSI, c (use prior and sample
information probabilities
a. use the EVPI to calculate to calculate revised
sample information probabilities.)
probabilities.
b. use indicator probabilities to
calculate prior probabilities.
c. use prior and sample
information probabilities to
calculate revised probabilities.
d. use sample information to
revise the sample information
probabilities.
9. If P(high) = .3, P(low) = .7, d (.55)
P(favorable|high) = .9, and
P(unfavorable|low) = .6, then
P(favorable) =
a. .10
b. .27
c. .30
d. .55
10. The efficiency of sample b (EVSI/EVPI*(100%))
information is
a. EVSI*(100%)
b. EVSI/EVPI*(100%)
c. EVwoSI/EVwoPI*(100%)
d. EVwSI/EVwoSI*(100%)
11. Decision tree probabilities d (the probability of an
refer to uncertain event occurring)
a. the probability of finding the
optimal strategy
b. the probability of the
decision being made
c. the probability of overlooked
choices
d. the probability of an
uncertain event occurring
11. 12. For a maximization problem, the b (maximin 17. (T/F) After all probabilities and payoffs are placed T(rue)
conservative approach is often approach) on a decision tree, the decision maker calculates
referred to as the expected values at state of nature nodes and
makes selections at decision nodes.
a. minimax approach
18. (T/F) Circular nodes in a decision tree indicate that T(rue)
b. maximin approach
it would be incorrect to choose a path from the
c. maximax approach
node.
d. minimin approach
19. (T/F) Decision alternatives are structured so that F(alse)
12. 13. For a minimization problem, the d (minimin
several could occur simultaneously.
optimistic approach is often referred to approach)
as the 20. (T/F) EVPI equals the expected regret associated T(rue)
with the minimax decision.
a. minimax approach 21. (T/F) EVPI is always greater than or equal to EVSI. T(rue)
b. maximin approach
22. (T/F) Expected value is the sum of the weighted T(rue)
c. maximax approach
payoff possibilities at a circular node in a decision
d. minimin approach
tree.
13. 14. For a maximization problem, the c (maximax
23. (T/F) Maximizing the expected payoff and T(rue)
optimistic approach is often referred to approach)
minimizing the expected opportunity loss result in
as the
the same recommended decision.
a. minimax approach 24. (T/F) Risk analysis helps the decision maker T(rue)
b. maximin approach recognize the difference between the expected
c. maximax approach value of a decision alternative and the payoff that
d. minimin approach may actually occur.

14. 15. For a minimization problem, the a (minimax 25. (T/F) Sample information with an efficiency rating T(rue)
conservative approach is often approach) of 100% is perfect information.
referred to as the 26. (T/F) Square nodes in a decision tree indicate that T(rue)
a decision must be made.
a. minimax approach
b. maximin approach 27. (T/F) States of nature should be defined so that T(rue)
c. maximax approach one and only one will actually occur.
d. minimin approach 28. (T/F) The expected value approach is more F(alse)
15. States of nature a (can describe appropriate for a one-time decision than a
uncontrollable repetitive decision.
a. can describe uncontrollable natural natural events 29. (T/F) The expected value of an alternative can F(alse)
events such as floods or freezing such as floods or never be negative.
temperatures. freezing
30. (T/F) The expected value of sample information F(alse)
b. can be selected by the decision temperatures.)
can never be less than the expected value of
maker.
perfect information.
c. cannot be enumerated by the
decision maker.
d. All of the alternatives are true.
16. (T/F) A decision strategy is a sequence T(rue)
of decisions and chance outcomes,
where the decisions chosen depend on
the yet to be determined outcomes of
chance events.