CBAD 292 - Exam 3 questions with
verified solutions
A decision maker has chosen .4 as the probability for which he cannot choose between a certain loss of
10,000 and the lottery p(-25000) + (1 - p)(5000). If the utility of -25,000 is 0 and of 5000 is 1, then the
utility of -10,000 is - correct answer ✔✔.6
A decision tree provides - correct answer ✔✔an objective way of determining the relative value of each
decision alternative.
A paint company has three sources for buying bright red pigment for their paints: Vietnam, Taiwan, or
Thailand. Unfortunately, the pigment is made from a bush whose annual growth is heavily dependent
upon the amount of rainfall during the growing season. The tables below show probabilities and prices
for wet, dry and normal growing seasons: - correct answer ✔✔Taiwan
A payoff - correct answer ✔✔exists for each pair of decision alternative and state of nature.
Decision tree probabilities refer to the probability of - correct answer ✔✔an uncertain event occurring.
After careful analysis, East West has determined the following cost breakdown for the four
manufacturers (in $1,000's) based on whether or not the trade bill passes:
If East West estimates that there is a 40% chance of the bill passing, which country should they choose
for manufacturing? - correct answer ✔✔Country B
For a minimization problem, the optimistic approach is often referred to as the - correct answer
✔✔minimin approach
If P(high) = .3, P(low) = .7, P(favorable | high) = .9, and P(unfavorable | low) = .6, then P(favorable) = -
correct answer ✔✔.55
, If the payoff from outcome A is twice the payoff from outcome B, then the ratio of these utilities will be -
correct answer ✔✔unknown without further information.
Making a good decision - correct answer ✔✔requires a clear understanding of decision alternatives,
states of nature, and payoffs.
Sensitivity analysis considers - correct answer ✔✔changes in the values of the payoffs.
States of nature - correct answer ✔✔can describe uncontrollable natural events such as floods or
freezing temperatures.
The approach to determining the optimal decision strategy involves - correct answer ✔✔a backward
(right to left) pass through the decision tree.
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 the - correct answer ✔✔expected value
of sample information.
The efficiency of sample information is - correct answer ✔✔EVSI/EVPI*(100%)
The options from which a decision maker chooses a course of action are - correct answer ✔✔not the
same as the states of nature.
under the control of the decision maker.
called the decision alternatives.
All of the alternatives are true.
The probability for which a decision maker cannot choose between a certain amount and a lottery based
on that probability is - correct answer ✔✔the indifference probability.
The purchase of insurance and lottery tickets shows that people make decisions based on - correct
answer ✔✔utility.
verified solutions
A decision maker has chosen .4 as the probability for which he cannot choose between a certain loss of
10,000 and the lottery p(-25000) + (1 - p)(5000). If the utility of -25,000 is 0 and of 5000 is 1, then the
utility of -10,000 is - correct answer ✔✔.6
A decision tree provides - correct answer ✔✔an objective way of determining the relative value of each
decision alternative.
A paint company has three sources for buying bright red pigment for their paints: Vietnam, Taiwan, or
Thailand. Unfortunately, the pigment is made from a bush whose annual growth is heavily dependent
upon the amount of rainfall during the growing season. The tables below show probabilities and prices
for wet, dry and normal growing seasons: - correct answer ✔✔Taiwan
A payoff - correct answer ✔✔exists for each pair of decision alternative and state of nature.
Decision tree probabilities refer to the probability of - correct answer ✔✔an uncertain event occurring.
After careful analysis, East West has determined the following cost breakdown for the four
manufacturers (in $1,000's) based on whether or not the trade bill passes:
If East West estimates that there is a 40% chance of the bill passing, which country should they choose
for manufacturing? - correct answer ✔✔Country B
For a minimization problem, the optimistic approach is often referred to as the - correct answer
✔✔minimin approach
If P(high) = .3, P(low) = .7, P(favorable | high) = .9, and P(unfavorable | low) = .6, then P(favorable) = -
correct answer ✔✔.55
, If the payoff from outcome A is twice the payoff from outcome B, then the ratio of these utilities will be -
correct answer ✔✔unknown without further information.
Making a good decision - correct answer ✔✔requires a clear understanding of decision alternatives,
states of nature, and payoffs.
Sensitivity analysis considers - correct answer ✔✔changes in the values of the payoffs.
States of nature - correct answer ✔✔can describe uncontrollable natural events such as floods or
freezing temperatures.
The approach to determining the optimal decision strategy involves - correct answer ✔✔a backward
(right to left) pass through the decision tree.
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 the - correct answer ✔✔expected value
of sample information.
The efficiency of sample information is - correct answer ✔✔EVSI/EVPI*(100%)
The options from which a decision maker chooses a course of action are - correct answer ✔✔not the
same as the states of nature.
under the control of the decision maker.
called the decision alternatives.
All of the alternatives are true.
The probability for which a decision maker cannot choose between a certain amount and a lottery based
on that probability is - correct answer ✔✔the indifference probability.
The purchase of insurance and lottery tickets shows that people make decisions based on - correct
answer ✔✔utility.
