Activity Guide and Evaluation Rubric - Unit 2 - Task 2 - Decisions Under Risk

Universidad Nacional Abierta y a Distancia
Vicerrectoría Académica y de Investigación

Course: Decisions Theory
Code: 212066
Activity Guide and Evaluation Rubric – Task 2 Decisions under risk
1. Activity Description
Type of activity: Collaborative

Evaluation moment: Intermediate Unit 2
Highest score of the activity: 120 points
The activity starts on: Sunday, October The activity ends on: Saturday, October
1, 2023 28, 2023
With this activity, you are expected to achieve the following learning
outcomes:
Learning Outcome 2: Identify expected value methods, decision trees and utility
theory for decision making in production, logistics and service systems.
The activity consists of:
Below you will find 5 exercises, the first on decision tree, the second on expected
value, the next two on decision tree and expected value and finally an exercise on
utility theory, which you must develop and present in the discussion forum - task 2,
and present collaboratively in the evaluation environment.
In the Learning environment, consult the bibliographic reference of unit 2.

Optimization models under risk:
• Adhwarjee, D. (2021). Theory and Applications of Operations Research

(pp.148-158). Laxmi Publications Pvt Ltd.
• Virine, L. & Trumper, L. (2019). Project Decisions, 2nd Edition: The Art and
Science (pp. 155-163). Berrett -Koehler Publishers.
• Pineda, R. (2019). Virtual learning object Unit 1. Decisions in an environment

of risk [Video File].
1
Exercise 1. Decision tree
Optimal solution for ticket sales: An event and show company wants to perform a
concert to generate profits, for the case study there are 3 possible demands, that is 3
states of nature that could occur, on the other hand and taking into account the
"follow the demand" policy the investor has the option to offer 1,000, 2,000 or 3,000
tickets. Please note the payout matrix presented in Annex 1.
Download Annex 1. Decision Theory Course Assignment Data (download, do not

preview) and follow the instructions.
According to the data of the annex 1 – Exercise 1. Decision tree, determine:

• Design the decision tree with its respective nodes and branches.
• Determine the pay of each branch of the decision tree.
• Apply the expected value criterion in order to calculate the expected value.
• Analyze and determine the decision to be made by the event organizer.
Exercise 2. Expected Value – EVPI
Optimal solution for production strategy: The design and testing phase of the new
Blue&Deck electronics line has just been completed. Management is trying to decide
on the appropriate production strategy for this product. Three alternatives are being
considered: strategy A, which represents significant capital outlays for a new efficient
production plant, a strategy B which proposes that the appliances be manufactured
using the current production plant to which a new assembly line would be added, and
a strategy C where spare capacity on the current assembly lines would be used to
manufacture the new products. Management decides to classify the demand for the
product as low, medium or high. A table with the marketing management's estimate
of profits and probabilities is presented in annex 1.

According to the data of the annex 1 – Exercise 2. Expected Value – EVPI.

• Analyze and determine the decision to be made by the management.
• Use EVPI to determine if the company should try to get a better estimate of the
demand in excel and the tool indicated in Annex 1.
2
Exercise 3. Decision tree and expected Value – EVPI and EVMI
Optimal solution for opening store: A businessman is considering opening a shoe

store in an established shopping center, in a new shopping center, in a store on a
busy street or in a sale center. His decision is based on his opinion of the likely
success of the new mall. Historically, 40 percent of such centers have been very
successful, 30 percent have been moderately successful, 20 percent have had low
success, and 10 percent have been unsuccessful. The annual profits obtained by the
shoe store, in millions of dollars, and the a priori and conditional probabilities of the
states of nature are shown in Annex 1.

According to the data of the annex 1 – Exercise 3. Expected Value – EVPI and EVMI:
• Apply the expected value criterion and analyze and determine the decision to
be made by the entrepreneur.
• Use the EVPI to determine whether the entrepreneur should try to obtain a
better estimate of the success of the shopping center, in excel and the tool
indicated in Annex 1.
• A test market study of potential success is expected to report a Good(G) or Bad
(B) condition (consult annex 1). Design the decision tree with its respective
nodes and branches for a Good and Bad state. What is the expected value of
market research information?
• What is the efficiency of the information?
Optimal solution for choosing production processes: A case is presented for a

manufacturer planning to introduce a new smart watch. It has a choice of four
production processes, A, B, C and D, ranging from a relatively minor modification of
existing facilities to a major plant expansion. The decision on the course of action
must be made at a time when the likely demand for the product is unknown. For
convenience, we will say that this potential demand can be low, medium-low,
medium-high and high. It is also assumed that the manufacturer can calculate for
each production process the profit over the life of the investment corresponding to
each of the four levels of demand. These benefit levels (in dollars) for each
production process-demand level combination are presented in annex 1.
3
According to the data of the annex 1 – Exercise 4. Expected Value – EVPI and EVMI:
be made by the manufacturer.
demand, in excel and the tool indicated in Annex 1.
• A test market study of potential product demand is expected to report a
favorable (F) or unfavorable (U) condition (consult annex 1). Design the
decision tree with its respective nodes and branches for a favorable and
unfavorable state. What is the expected value of market research information?
Exercise 5. Utility theory
Suppose an entrepreneur has six possible returns (in dollars): -10.000, 30.000,
60.000, 70.000, 90.000, and 130.000. Assign a utility of 0 to a loss of 10,000 and a
profit of 100 to a profit of 130,000. The table 1: Probability P for each intermediate
utility, shows for each intermediate utility the probability P that the entrepreneur is
indifferent between receiving 1 insurance and a bet in which he would receive
$130,000 with probability P and lose $10,000 with probability (1-P).
Table 1. Probability P for each intermediate utility.
Performance 30.000 60.000 70.000 90.000

P 0,35 0,6 0,7 0,85
According to the information:

• What are the utilities of intermediate yields.
• Use the expected value method to recommend a decision.
• Use the expected utility to justify your answer.
For the development of the activity consider that:
In the Initial Information Environment, you must:
4
• Constantly review the course agenda (verify the start and end dates of the
activity).
• Check the synchronous attention schedules via skype.
• Consult the classroom news forum of the course.
• Review the course presentation.
• Consult the Synchronous Meetings page via web conference.
In the Learning Environment, you must: Consult the reference proposed in the
required educational resources of unit 2. Optimization models under risk. Submit in a
timely manner in the discussion forum of the course, the contributions and advances
in the development and solution of the problems.
In the Evaluation Environment, you must: Deliver the group report according to its
specifications and availability scheduled in the course agenda.
Evidence of individual work:
The individual evidence to be submitted is:
Present in the Discussion forum - Task 2 (learning environment) in an individual and
timely manner, a spreadsheet document (excel) with the development of:



better estimate of the success of the shopping center.
5

demand.

Evidence of collaborative work:

The collaborative evidence to be submitted is:
Collaboratively, the working group must select exercise 1, exercise 2, exercise 3,
exercise 4 and exercise 5 within the exercises presented individually to review the
procedure and the application of the models and algorithms. Construct a spreadsheet
document (Excel) consolidated by the members of the group that participated in the
forum, entitled Resolution of problems under risk models, present it in the Discussion
Forum - Task 2 (learning environment) and deliver it in a collaborative in the evaluation
environment, in an which must contain the following information and presentation:
Cover: Identifying the activity, the title, the authors, the tutor, the course, the
institution, the school, the program and the year.

6

better estimate of the success of the shopping center.

demand.

Bibliography (with APA standard).

File Extension: .xls (excel)
Identification: Task 2_Number of group
2. General Guidelines for the Development of Evidences to Submit
7
For Collaborative evidences, consider the following:
• All members of the group must participate with their contributions in the
development of the activity.
• In each group a single member will be chosen to submit the requested product in
the environment indicated by the teacher.
• Before submitting the requested product, students should check that it meets all
the requirements mentioned in this activity guide.
• Only the members of the group that participated with contributions during the
time assigned for the activity should be included as authors of the submitted
product.
Please keep in mind that all individual or collaborative written products must comply
with the spelling rules and presentation conditions defined in this activity guide.
Regarding the use of references, consider that the product of this activity must
comply with APA style.
In any case, make sure you comply with the rules and avoid academic plagiarism.
You can review your written products using the Turnitin tool found in the virtual
campus.
Under the Academic Code of Conduct, the actions that infringe the academic order,
among others, are the following: paragraph e) Plagiarism is to present as your own
work all or part of a written report, task or document of invention carried out by
another person. It also implies the use of citations or lack of references, or it
includes citations where there is no match between these and the reference and
paragraph f) To reproduce, or copy for profit, educational resources or results of
research products, which have rights reserved for the University. (Agreement 029 -
December 13, 2013, article 99)
The academic penalties students will face are:

a) In case of academic fraud demonstrated in the academic work or evaluation, the
score obtained will be zero (0.0) without any disciplinary measures being derived.
b) In case of proven plagiarism in academic work of any nature, the score obtained
will be zero (0.0), without any disciplinary measures being derived.
8
3. Evaluation Rubric Template
Type of activity: Collaborative

Evaluation moment: Intermediate Unit 2
The highest score in this activity is 120 points
First evaluation High level: The student presents significant contributions in
criterion: the forum for the development of the proposed activities, in a
timely manner and contributes to the collective construction of
Use the discussion the final report.
forum, presenting If your work is at this level, you can get between 10
the development of points and 15 points
the exercises
proposed in the Average level: The student presents partial contributions in
guide the forum for the development of the proposed activities but
This criterion does not do so on time and/or does not contribute to the
represents 15 collective construction of the final report.
points of the total If your work is at this level, you can get between 2
of 120 points of points and 9 points
the activity.
Low level: The student does not present contributions in the
forum for the development of the proposed activities, and/or
does so late.
If your work is at this level, you can get between 0
points and 1 point
Second evaluation High level: The student applies and analyzes the decision
criterion: tree method of exercise 1, correctly determining all the
Use the decision requested aspects.
tree method to If your work is at this level, you can get between 10
determine the points and 15 points
optimal solution and
interprets the Average level: The student applies and partially analyzes the
results of the model decision tree method of exercise 1, partially determining all the
for decision making requested aspects.
This criterion If your work is at this level, you can get between 2
represents 15 points and 9 points
points of the total
9
of 120 points of Low level: The student does not apply or analyze the
the activity. decision tree method to exercise 1.
points and 1 point.
Third evaluation High level: The student applies and analyzes the EVPI
criterion: method of exercise 2, correctly determining all the requested
Use the EVPI aspects.
method to If your work is at this level, you can get between 10
determine the points and 15 points
interprets the Average level: The student applies and partially analyzes the
results of the model EVPI method of exercise 2, partially determining all the
for decision making. requested aspects.
This criterion If your work is at this level, you can get between 2
represents 15 points and 9 points
points of the total
of 120 points of Low level: The student does not apply or analyze the EVPI
the activity. method to exercise 2.
points and 1 point.
Fourth evaluation
High level: The student applies and analyzes decision tree,
criterion:
EVPI and EVMI method to exercise 3, correctly determining all
the requested aspects.
Use the decision
tree, EVPI and EVMI
points and 25 points
method to
determine the
Average level: The student applies and partially analyzes the
decision tree, EVPI and EVMI method to exercise 3, partially
interprets the
determining all the requested aspects.
results of the model
for decision making
points and 17 points
This criterion
Low level: The student does not apply or analyze decision
represents 25
tree, EVPI and EVMI method to exercise 3.
points of the total
of 120 points of
points and 1 point.
the activity.
Fifth evaluation High level: The student applies and analyzes decision tree,
criterion: EVPI and EVMI method to exercise 4, correctly determining all
the requested aspects.
10
Use the decision If your work is at this level, you can get between 18
tree, EVPI and EVMI points and 25 points
method to
determine the Average level: The student applies and partially analyzes the
optimal solution and decision tree, EVPI and EVMI method to exercise 4, partially
interprets the determining all the requested aspects.
results of the model If your work is at this level, you can get between 2
for decision making points and 17 points
This criterion
represents 25 Low level: The student does not apply or analyze decision
points of the total tree, EVPI and EVMI method to exercise 4.
of 120 points of If your work is at this level, you can get between 0
the activity. points and 1 point.
Sixth evaluation High level: The student applies and analyzes the Utility
criterion: Theory method to exercise 5, correctly determining all the
requested aspects.
Use the Utility If your work is at this level, you can get between 10
Theory method to points and 15 points
determine the
optimal solution and Average level: The student applies and partially analyzes the
interprets the Utility Theory method to exercise 5, partially determining all
results of the model the requested aspects.
for decision making. If your work is at this level, you can get between 2
points and 9 points
This criterion
represents 15 Low level: The student does not apply or analyzes the Utility
points of the total Theory method to exercise 5.
of 120 points of If your work is at this level, you can get between 0
the activity. points and 1 point.
Seventh High level: The student contributes and presents in group the
evaluation academic product with the approach, development, solution
criterion: and interpretation of correct results of the Exercises of Task 2,
with excellent writing, spelling, citations and bibliographic
Group report on references according to the APA standard in its contents.
decision methods If your work is at this level, you can get between 8
under uncertainty points and 10 points
and game theory.
This criterion Average level: The student contributes and presents in group
represents 10 the product academic with the approach, development, solution
points of the total and interpretation of the results of the Exercises of Task 2,
11
of 120 points of with regular writing, spelling, citations, and bibliographical
the activity. references according to the APA standard in its contents.
points and 7 points
Low level: The student does not contribute and does not
submit the academic product of task 2 collaboratively.
points and 1 point.
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Universidad Nacional Abierta y a Distancia

Vicerrectoría Académica y de Investigación

Activity Guide and Evaluation Rubric – Task 2 Decisions under risk

Type of activity: Collaborative

In the Learning environment, consult the bibliographic reference of unit 2.

• Adhwarjee, D. (2021). Theory and Applications of Operations Research

• Pineda, R. (2019). Virtual learning object Unit 1. Decisions in an environment

Download Annex 1. Decision Theory Course Assignment Data (download, do not

According to the data of the annex 1 – Exercise 1. Decision tree, determine:

Exercise 2. Expected Value – EVPI

Download Annex 1. Decision Theory Course Assignment Data (download, do not

According to the data of the annex 1 – Exercise 2. Expected Value – EVPI.

Optimal solution for opening store: A businessman is considering opening a shoe

Download Annex 1. Decision Theory Course Assignment Data (download, do not

Exercise 4. Decision tree and expected Value – EVPI and EVMI

Optimal solution for choosing production processes: A case is presented for a

Exercise 5. Utility theory

Table 1. Probability P for each intermediate utility.

Performance 30.000 60.000 70.000 90.000

According to the information:

For the development of the activity consider that:

In the Initial Information Environment, you must:

Exercise 1. Decision tree

Exercise 2. Expected Value – EVPI

Exercise 3. Decision tree and expected Value – EVPI and EVMI

Exercise 4. Decision tree and expected Value – EVPI and EVMI

Exercise 5. Utility theory

Evidence of collaborative work:

Exercise 1. Decision tree

Exercise 2. Expected Value – EVPI

Exercise 3. Decision tree and expected Value – EVPI and EVMI

Exercise 4. Decision tree and expected Value – EVPI and EVMI

Exercise 5. Utility theory

Bibliography (with APA standard).

2. General Guidelines for the Development of Evidences to Submit

The academic penalties students will face are:

Type of activity: Collaborative

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