# Decision Theory and Correct Answer

Topics: Decision theory, Risk, Decision making Pages: 15 (1439 words) Published: June 29, 2014
﻿DECISION

QUIZZES

1.
The value of perfect information is directly related to losses predicted with imperfect information. A. True

B. False

A.
True

B.
False

2.
EVPI is the expected financial value of the regret for the optimal decision under risk. A. True

B. False

A.
True

B.
False

3.
A decision tree branches out to include all of the possible decisions and all of the possible events we are capable of identifying. A. True

B. False

A.
True

B.
False

4.
Because Payoffs and Probabilities are estimates, sensitivity analysis is useful. A. True

B. False

A.
True

B.
False

5.
A decision tree requires five or more branches to be useful. A. True

B. False

A.
True

B.
False

6.
A good decision process will offer the best chance of reaching a good decision. A. True

B. False

A.
True

B.
False

7.
While all of these steps are important in reaching a good decision, which one of the following steps is often the most crucial in the decision-making process? A.
Identifying the problem.

B.
Specifying objectives

C.
Developing alternatives

D.
Analyzing alternatives

E.
Selecting the best alternative

8.
Which one of the following won't generally be given as a reason for poor decisions? A.
Unforeseeable circumstances

B.
Bounded rationality

C.
Sub-optimization

D.
Mistakes in the decision process

E.
All are reasons that are offered for poor decisions

9.
A table showing the present values for each alternative in every possible state of nature is called a _________ table. A.
Bounded Rationality

B.
Decision Environment

C.
Decision Risk

D.
Payoff

E.
Present Value

10.
If the minimum expected regret is computed, it indicates to a decision-maker the: A.
expected value of perfect information

B.
expected payoff under certainty

C.
minimum guaranteed profitability

D.
expected payoff under risk

E.
none of the above

Which of the following is not a criterion for decision making under uncertainty?

A)
EVPI

B)
Maximin

C)
Maximax

D)
Laplace method

E)
Minimax regret

2 INCORRECT

Which one of the following statements is not correct relative to decision making under risk?

A)
The sum of the state-of-nature probabilities must be 1.00.

B)
Every probability must be greater than or equal to zero.

C)
All probabilities are assumed to be equal.

D)
Probabilities are used to compute expected values.

E)
Perfect information assumes that the state of nature that will actually occur is known.

3 INCORRECT

The next three questions are based on the following payoff table of the present values:

The maximax strategy is:

A)

B)
lease

C)
rent

D)
high

E)
low

4 INCORRECT

The maximin strategy is:

A)

B)
lease

C)
rent

D)
high

E)
low

5 INCORRECT

If the probability of the state of nature "high" is 0.7, the decision with the highest expected value is:

A)

B)
lease

C)
rent

D)
high

E)
low

6 INCORRECT

Which one of these refers to decision making under risk?

A)
EVPI

B)
Minimax regret

C)
Maximin

D)
Maximax

E)
Laplace

7 INCORRECT

The expected monetary value approach is most appropriate when the decision maker is:

A)
risk averse

B)
risk seeking

C)
risk neutral

D)
risk free

E)
risky

The first step in decision analysis is to evaluate the list of alternatives.

A)
True

B)
False

2 INCORRECT

Certainty is a situation that exists when it is known which state of nature will occur.

A)
True

B)
False...