OPSY 5315 RAO Exam 1 | Complete Practice Questions,
Correct Answers & Detailed Rationales (2026/2027)
Question 1
Under conditions of uncertainty, the decision criterion that selects the
alternative with the maximum possible payoff (optimistic approach) is
called:
• A. Maximin.
• B. Maximax.
• C. Minimax Regret.
• D. Expected Monetary Value.
Correct Answer: B. Maximax.
Detailed Rationale: The maximax criterion is an optimistic (risk-seeking)
approach that looks at the best possible outcome for each alternative
and chooses the one with the highest maximum payoff.
Question 2
The decision criterion that evaluates each alternative by its worst
possible outcome and chooses the one that maximizes that minimum
payoff (pessimistic approach) is:
• A. Maximax.
• B. Minimax Regret.
• C. Maximin (Wald).
• D. Laplace.
Correct Answer: C. Maximin (Wald).
,Detailed Rationale: Maximin is a conservative or pessimistic approach
where a decision-maker looks at the minimum payoff for each
alternative and selects the alternative with the highest minimum.
Question 3
The Minimax Regret decision criterion aims to:
• A. Minimize the maximum possible opportunity loss (regret) for
any given state of nature.
• B. Maximize average profits across all outcomes.
• C. Minimize the absolute variance of payoffs.
• D. Maximize the probability of the best state of nature occurring.
Correct Answer: A. Minimize the maximum possible opportunity loss
(regret) for any given state of nature.
Detailed Rationale: Regret is defined as the difference between the
best possible payoff for a given state of nature and the actual payoff
received. Minimax regret minimizes the worst-case regret.
Question 4
Expected Monetary Value (EMV) for a decision alternative is calculated
as:
• A. The sum of all possible payoffs divided by the number of states
of nature.
• B. The sum of each payoff multiplied by its corresponding
probability of occurrence.
• C. The difference between the highest and lowest payoff.
, • D. The payoff of the most likely state of nature.
Correct Answer: B. The sum of each payoff multiplied by its
corresponding probability of occurrence.
Detailed Rationale: EMV is the expected value (mean) of the probability
distribution of payoffs for an alternative, calculated as ∑(Payoff ×
Probability).
Question 5
Expected Value of Perfect Information (EVPI) measures:
• A. The maximum amount a decision-maker should be willing to
pay to obtain perfect forecast information.
• B. The cost of acquiring historical data.
• C. The variance of the sample data.
• D. The difference between maximax and maximin payoffs.
Correct Answer: A. The maximum amount a decision-maker should be
willing to pay to obtain perfect forecast information.
Detailed Rationale: EVPI is calculated as the Expected Value with
Perfect Information minus the Expected Value without Perfect
Information (EMV of the best alternative).
Question 6
In a decision tree diagram, decision nodes are conventionally
represented by:
• A. Circles.
• B. Squares.
, • C. Triangles.
• D. Diamonds.
Correct Answer: B. Squares.
Detailed Rationale: By convention, decision trees use squares to
represent decision nodes (where a choice must be made) and circles to
represent chance nodes (where outcomes occur based on
probabilities).
Question 7
An opportunity loss table (regret table) is constructed by:
• A. Subtracting each payoff in a column from the highest payoff in
that same column.
• B. Adding all row probabilities together.
• C. Subtracting row values from column minimums.
• D. Multiplying each payoff by its probability.
Correct Answer: A. Subtracting each payoff in a column from the
highest payoff in that same column.
Detailed Rationale: Opportunity loss represents what is "left on the
table" by not choosing the optimal alternative for a specific state of
nature (column).
Question 8
The Laplace decision criterion assumes that:
• A. All states of nature are equally likely to occur.
• B. Only the most optimistic state of nature matters.
Correct Answers & Detailed Rationales (2026/2027)
Question 1
Under conditions of uncertainty, the decision criterion that selects the
alternative with the maximum possible payoff (optimistic approach) is
called:
• A. Maximin.
• B. Maximax.
• C. Minimax Regret.
• D. Expected Monetary Value.
Correct Answer: B. Maximax.
Detailed Rationale: The maximax criterion is an optimistic (risk-seeking)
approach that looks at the best possible outcome for each alternative
and chooses the one with the highest maximum payoff.
Question 2
The decision criterion that evaluates each alternative by its worst
possible outcome and chooses the one that maximizes that minimum
payoff (pessimistic approach) is:
• A. Maximax.
• B. Minimax Regret.
• C. Maximin (Wald).
• D. Laplace.
Correct Answer: C. Maximin (Wald).
,Detailed Rationale: Maximin is a conservative or pessimistic approach
where a decision-maker looks at the minimum payoff for each
alternative and selects the alternative with the highest minimum.
Question 3
The Minimax Regret decision criterion aims to:
• A. Minimize the maximum possible opportunity loss (regret) for
any given state of nature.
• B. Maximize average profits across all outcomes.
• C. Minimize the absolute variance of payoffs.
• D. Maximize the probability of the best state of nature occurring.
Correct Answer: A. Minimize the maximum possible opportunity loss
(regret) for any given state of nature.
Detailed Rationale: Regret is defined as the difference between the
best possible payoff for a given state of nature and the actual payoff
received. Minimax regret minimizes the worst-case regret.
Question 4
Expected Monetary Value (EMV) for a decision alternative is calculated
as:
• A. The sum of all possible payoffs divided by the number of states
of nature.
• B. The sum of each payoff multiplied by its corresponding
probability of occurrence.
• C. The difference between the highest and lowest payoff.
, • D. The payoff of the most likely state of nature.
Correct Answer: B. The sum of each payoff multiplied by its
corresponding probability of occurrence.
Detailed Rationale: EMV is the expected value (mean) of the probability
distribution of payoffs for an alternative, calculated as ∑(Payoff ×
Probability).
Question 5
Expected Value of Perfect Information (EVPI) measures:
• A. The maximum amount a decision-maker should be willing to
pay to obtain perfect forecast information.
• B. The cost of acquiring historical data.
• C. The variance of the sample data.
• D. The difference between maximax and maximin payoffs.
Correct Answer: A. The maximum amount a decision-maker should be
willing to pay to obtain perfect forecast information.
Detailed Rationale: EVPI is calculated as the Expected Value with
Perfect Information minus the Expected Value without Perfect
Information (EMV of the best alternative).
Question 6
In a decision tree diagram, decision nodes are conventionally
represented by:
• A. Circles.
• B. Squares.
, • C. Triangles.
• D. Diamonds.
Correct Answer: B. Squares.
Detailed Rationale: By convention, decision trees use squares to
represent decision nodes (where a choice must be made) and circles to
represent chance nodes (where outcomes occur based on
probabilities).
Question 7
An opportunity loss table (regret table) is constructed by:
• A. Subtracting each payoff in a column from the highest payoff in
that same column.
• B. Adding all row probabilities together.
• C. Subtracting row values from column minimums.
• D. Multiplying each payoff by its probability.
Correct Answer: A. Subtracting each payoff in a column from the
highest payoff in that same column.
Detailed Rationale: Opportunity loss represents what is "left on the
table" by not choosing the optimal alternative for a specific state of
nature (column).
Question 8
The Laplace decision criterion assumes that:
• A. All states of nature are equally likely to occur.
• B. Only the most optimistic state of nature matters.
