TRUE

 Sample information with an efficiency rating of 100% is perfect information.

 States of nature should be defined so that one and only one will actually occur
 Square nodes in a decision tree indicate that a decision must be made.
 Circular nodes in a decision tree indicate that it would be incorrect to choose a path from the
node.
 Risk analysis helps the decision maker recognize the difference between the expected value of a
decision alternative and the payoff that may actually occur.
 Expected value is the sum of the weighted payoff possibilities at a circular node in a decision
tree.
 EVPI is always greater than or equal to EVSI
 After all probabilities and payoffs are placed on a decision tree, the decision maker calculates
expected values at state of nature nodes and makes selections at decision nodes
 A decision strategy is a sequence of decisions and chance outcomes, where the decisions chosen
depend on the yet to be determined outcomes of chance events.
 EVPI equals the expected regret associated with the minimax decision.
 Maximizing the expected payoff and minimizing the expected opportunity loss result in the
same recommended decision.
 The minimum expected opportunity loss provides the best decision, regardless of whether the
decision analysis involves minimization or maximization.
 The primary value of decision trees is as a useful way of organizing how operations managers
think about complex multiphase decisions.
 A high efficiency rating indicates that the sample information is almost as good as perfect
information
 When the expected value approach is used to select a decision alternative, the payoff that
actually occurs will usually have a value different from the expected value.
 When monetary value is not the sole measure of the true worth of the outcome to the decision
maker, monetary value should be replaced by utility.
 The outcome with the highest payoff will also have the highest utility.
 To assign utilities, consider the best and worst payoffs in the entire decision situation.
 A risk avoider will have a concave utility function.
 The risk premium is never negative for a conservative decision maker.
 The risk neutral decision maker will have the same indications from the expected value and
expected utility approaches.
 The utility function for a risk avoider typically shows a diminishing marginal return for money
 The expected monetary value approach and the expected utility approach to decision making
usually result in the same decision choice unless extreme payoffs are involved.
FALSE
 Decision alternatives are structured so that several could occur simultaneously
 The expected value of an alternative can never be negative.
 The expected value approach is more appropriate for a one-time decision than a repetitive
decision.
 The expected value of sample information can never be less than the expected value of perfect
information
 The decision alternative with the best expected monetary value will always be the most
desirable decision.
 Expected utility is a particularly useful tool when payoffs stay in a range considered reasonable
by the decision maker.
 The expected utility is the utility of the expected monetary value.
 Given two decision makers, one risk neutral and the other a risk avoider, the risk avoider will
always give a lower utility value for a given outcome.
 When the payoffs become extreme, most decision makers are satisfied with the decision that
provides the best expected monetary value.

MCQ

 States of nature - can describe uncontrollable natural events such as floods or freezing
temperatures.
 Payroll - exists for each pair of decision alternative and state of nature.
 Making a good decision - requires a clear understanding of decision alternatives, states of
nature, and payoffs.
 A decision tree - arranges decision alternatives and states of nature in their natural
chronological order.
 Which of the methods for decision making best protects the decision maker from undesirable
results? - the conservative approach
 Sensitivity analysis considers - changes in the values of the payoffs.
 To find the EVSI - use prior and sample information probabilities to calculate revised
probabilities.
 If P(high) = .3, P(low) = .7, P(favorable | high) = .9, and P(unfavorable | low) = .6, then
P(favorable) = .55
 The efficiency of sample information is - EVSI/EVPI*(100%)
 Decision tree probabilities refer to - the probability of an uncertain event occurring
 For a maximization problem, the conservative approach is often referred to as the - maximin
approach
 For a minimization problem, the optimistic approach is often referred to as the - minimin
approach
 For a maximization problem, the optimistic approach is often referred to as the - maximax
approach
 For a minimization problem, the conservative approach is often referred to as the - minimax
approach
 In an influence diagram, decision nodes are represented by - squares or rectangles
 Which of the following approaches to decision making requires knowledge of the probabilities
of the states of nature? - expected value
 Decision tree probabilities refer to the probability of - an uncertain event occurring.
 Which of the following is not an advantage of using decision tree analysis? - the ability to see
clearly the future outcome of a decision
 A decision tree provides - an objective way of determining the relative value of each decision
alternative.