Quiz 3 Pool

A payoff table is given below and the probabilities of s1, s2, and s3 are .2, .5, and .
3, respectively, what choice

should be made by an optimistic decision maker?
S1 S2 S3 Expected Decision
D1 250 750 500 (250*0.2)+(750*0.5)+(500*0.3) = 575
D2 300 -250 1200 (300*0.2)+(-250*0.5)+(1200*0.3) = 295
D3 500 500 600 (500*0.2)+(500*0.5)+(600*0.3) = 530
A. d2 or d3
B. d3
C. d1
D. d2 Max (500, 750, 1200)
what is the expected payoff for the best decision?
A. 260
B. 835
C. 875
D. 575
E. 545
The optimistic decision criterion is the criterion of
A. maximax.
B. realism.
C. equally likely.
D. maximin.
E. minimax regret.
Below you are given a payoff table involving two states of nature and three decision alternatives. The probability
of occurrence of S1 = 0.2. What is the expected value of the best decision alternative?
S1 S2
A 5 8 0.2*5+0.8*8=7.4
B 10 12 0.2*10+0.8*12=11.6
c 20 6 0.2*20+0.8*6=8.8
A. 8.8
B. 2.0
C. 11.6
D. 7.4
E. 9.6
Which of the following is true about the expected value of perfect information?
A. All of the answers are correct.

B. It is the amount charged for marketing research.
C. It is calculated as expected value with perfect information minus maximum EV.
D. It is calculated as EV minus EOL.
E. It is the amount you would pay for any sample study.
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A market research survey is available for no cost. Using a decision tree analysis, it is found that the expected
value with the survey is $65,000. The expected value with no survey is $62,000 and the EVPI is $4,000. What is
the expected value of the survey information (EVSI)?
A. $3,000 EVSI = EV w SI – EV w/o SI = 65000 – 62000

B. $13,000 EVPI = 4000, EV w SI = 65000, EV w/o SI = 62000
C. $10,000 Efficiency Rating = 3000/4000 * 100 = 75%
D. $12,500
E. $7,000
Use graphical sensitivity analysis to determine which decision to select if the probability of S1 is 75%.
State of nature
Decision S1 S2 Slope
D1 8 10 -2 -2p+10 D1&D2 p=0.6
D2 4 16 -12 -12p+16 D2&D3 p=0.727
D3 10 0 10 10p+0 D1&D3 p=0.8333
A. d1 or d3
B. d1 (d1 is better for p<0.833 therefore one should choose d1 as it is better from d2 & d3 at p=0.75)
C. d2
D. d3
Use graphical sensitivity analysis to determine at what probability you are indifferent to d1 and d2?
A. 27%
B. 60%
C. 25%
D. 83%
E. 72%
The following is a payoff table giving profits for various situations.
What decision would an optimist make?
A. Alternative 3
B. State of Nature A
C. Alternative 1
D. Alternative 2
E. Do Nothing
State of Nature
Alternatives A B C
Alternative 1 100 120 180 0.3*100 + 0.5*120 + 0.2*180 = 126
Alternative 2 200 100 50 0.3*200 + 0.5*100 + 0.2*50 = 120
Alternative 3 120 140 120 0.3*120 + 0.5*140 + 0.2*120 = 130
Do nothing 0 0 0
The probabilities for states of nature A, B, C, are 0.3, 0.5, and 0.2, respectively. What is the expected value of
perfect information (EVPI)?
A. 0
B. 36
C. 166 = EVPI = 0.3*200 + 0.5*140 + 0.2*180
D. 130
E. 40
The efficiency rating of decision theory information is the ratio of
A. EOL to EVSI
B. EOL to EVPI
C. EVPI to EVSI
D. EVSI to EVPI
If the probability of s1 = .6 and the probability of F = .40 what is the value at node 2.
A. 284
B. 320 EV at Node 2 = Max(320,320)
C. 296
D. 260
E. 580
what is the value at node 4?
A. 240 EV at Node 8 = 0.6*100 + 0.4*300 = 180
B. 210 EV at Node 9 = 0.6*400 + 0.4*200 = 320
C. 320 EV at Node 4 =Max(180,320) = 320
D. 260
E. 284
what is the value at node 3.
A. 180
B. 320 EV at node3 =Max(320,180) = 320
C. 240 EV at node 6 =s1*100 +s2*300 =0.6*100 +0.4*300 =180
D. 500 EV at node7 = s1*400 +s2*200=0.6*400 +0.4*200 =320
Given the following profit payoff table, which decision would you choose based on a minimax regret approach?
S1 S2 S3
D1 50 20 -10
D2 80 30 -20
D3 100 30 -40
D4 300 25 -160
A. d2
B. d1
C. d1 and d3
D. d3
E. d4
Given the following profit payoff table, which decision would you choose based on a cautious decision approach?
A. D1 and d2
B. D1
C. D4
D. D2
E. D3
For the payoff table below, the decision maker will use P(s1) = .15, P(s2) = .5, and P(s3) = .35. What is the most
you would pay for a highly reliable forecast?
State of Nature
Decision S1 S2 S3
D1 -5000 1000 10000 0.15*-5000 + 0.5*1000 + 0.35*10000 = 3250
D2 -15000 -2000 40000 0.15*-15000 + 0.5*-2000 + 0.35*40000 = 10750
A. 3000 = 0.15*-5000 + 0.15*-15000

B. 7325 state 1 has both the payoffs in negative, this implies that the amount needs to be paid
C. 7750
D. 10750
E. 13750
Determine the expected value for the best decision.
A. 15,400
B. 13,000
C. 12,000
D. 11,500
E. 12,300
What is the expected value of perfect information?
A. 12,500
B. 3,400
C. 12,400
D. 3,100
E. 15,400 = 0.2*20,000+0.1*9000+0.7*15000
The following is a regret table.
State of Nature
Alternatives A B C
Alternative 1 30 0 10
What decision should be made based on the minimax regret criterion?
A. State of Nature C
B. Alternative 2 Min (30,20,20) = 20
C. Alternative 3
D. Alternative 2 or alternative 3
E. Alternative 1
State of Nature
Alternatives A B C
What decision should be made based on the minimax regret criterion?
A. Alternative 1
B. State of Nature C
C. Alternative 3 Min (90,110,80) = 80
D. Alternative 2
E. Alternative1 or Alternative 3
Given the profit payoff table below, use graphical sensitivity analysis to determine the expected value where you
are indifferent to decision d1 and d2.
S1 S2
D1 30 50 -20p+50 P = 0.5
D2 60 20 40p+20
D3 40 10
A. 55
B. 25
C. 40 = 30*0.5+0.5*50
D. 57
E. 33
Given the following table of payoffs use sensitivity analysis to determine at what probability or less you would
select decision A?
Decision Event 1 Event 2

A 0 20 20p+20 A>B p=0.5
B 4 16 12p+16
C 8 0 8p A>C p=0.7143
A. .50
B. .40
C. .80
D. .79
Given the following table of payoffs use sensitivity analysis to determine at what probability or less you would
select decision C?
Decision Event 1 Event 2 EV1*p+(1-p)*EV2
A 0 20 20p+20 C>A p=0.71
B 6 16 10p+16 C>B p=0.89
C 8 0 8p
A. .89
B. .80
C. .67
D. .40
E. .50
Below you are given a payoff table involving three states of nature and two decision alternatives. The probability
that S1 will occur is 0.1; the probability that S2 will occur is 0.6. The expected value of the best alternative equals
S1 S2 S3
A 80 45 -20 0.1*80+0.6*45+0.3*-20 = 29
B 40 50 15 0.1*40+0.6*50+0.3*15 = 38.5
A. 4
B. 12
C. 29
D. 38.5
E. 105
If the probability of s1 is .40 what is the value at node 11.
A. 220 At Node 11 probability of S1 = 0.40, so probability of S2 = 1-0.4=0.6

B. 180 Value at Node 11 = 0.4*400+0.6*200 = 160 + 120 = 280
C. 280
D. 310
E. 320
The difference between the expected value of an optimal strategy based on sample information and the “best”
expected value without any sample information is called
A. Efficiency of information
B. Weighted average of the sample
C. Expected value of perfect information
D. Optimal information
E. Expected value of sample information
State of Nature
Alternatives A B C
Alternative 1 100 120 180 0.3*100+0.5*120+0.2*180 = 126
Alternative 2 120 140 120 0.3*120+0.5*140+0.2*120 = 130
Alternative 3 200 100 50 0.3*200+0.5*100+0.2*50 = 120
Do nothing 0 0 0
The probabilities for states of nature A, B, C, are 0.3, 0.5, and 0.2, respectively. If a person selected alternative 1,
what would the expected profit be?
A. 126
B. 120
C. None of the answers are correct.
D. 180
E. 133.33
In the construction of decision trees, which of the following shapes represents a state of nature node?
A. Circle
B. Diamond
C. None of the answers is correct.
D. Triangle square
State of Nature
Alternatives A B C
Alternative 1 20 100 0 0.3*20 + 0.5*100 + 0.2*0 = 56
Alternative 2 100 0 25 0.3*100 + 0.5*0 + 0.2*25 = 35
Alternative 3 0 40 90 0.3*0 + 0.5*40 + 0.2*90 = 38
The probabilities for states of nature A, B, C, are 0.3, 0.5, and 0.2, respectively. If a person were to use the
expected opportunity loss criterion, what decision would be made?
A. Alternative 3
B. Alternative 1
C. State of nature C
D. Alternative 2
E. State of Nature B
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A payoff table is given below and the probabilities of s1, s2, and s3 are .2, .5, and .

3, respectively, what choice

what is the expected payoff for the best decision?

The optimistic decision criterion is the criterion of

A. All of the answers are correct.

A. $3,000 EVSI = EV w SI – EV w/o SI = 65000 – 62000

The following is a payoff table giving profits for various situations.

What decision would an optimist make?

The efficiency rating of decision theory information is the ratio of

what is the value at node 4?

A. 240 EV at Node 8 = 0.6*100 + 0.4*300 = 180

what is the value at node 3.

A. 3000 = 0.15*-5000 + 0.15*-15000

Determine the expected value for the best decision.

What is the expected value of perfect information?

The following is a regret table.

The following is a regret table.

Decision Event 1 Event 2

If the probability of s1 is .40 what is the value at node 11.

A. 220 At Node 11 probability of S1 = 0.40, so probability of S2 = 1-0.4=0.6

The following is a payoff table giving profits for various situations.

The following is a regret table.

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A. 240 EV at Node 8 = 0.6100 + 0.4300 = 180

A. 3000 = 0.15-5000 + 0.15-15000