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Bayes' decision rule says to choose the alternative with the largest expected payoff.

A) True
B) False

Correct Answer

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True

Based on the following payoff table, answer the following:  Alternative  High  Low  Buy 90−10 Rent 7040 Lease 6055 Prior Probability 0.40.6\begin{array} { | l | r | r | } \hline { \text { Alternative } } & \text { High } & { \text { Low } } \\\hline \text { Buy } & 90 & - 10 \\\hline \text { Rent } & 70 & 40 \\\hline \text { Lease } & 60 & 55 \\\hline \text { Prior Probability } & 0.4 & 0.6 \\\hline\end{array} The maximax strategy is:


A) Buy.
B) Rent.
C) Lease.
D) High.
E) Low.

F) A) and D)
G) C) and D)

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The maximum likelihood criterion ignores the payoffs for states of nature other than the most likely one.

A) True
B) False

Correct Answer

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The operations manager for a local bus company wants to decide whether he should purchase a small, medium, or large new bus for his company. He estimates that the annual profits (in $000) will vary depending upon whether passenger demand is low, moderate, or high, as follows. The operations manager for a local bus company wants to decide whether he should purchase a small, medium, or large new bus for his company. He estimates that the annual profits (in $000) will vary depending upon whether passenger demand is low, moderate, or high, as follows. What is his expected value of perfect information? A) $15,000 B) $61,000 C) $69,000 D) $72,000 E) $87,000 What is his expected value of perfect information?


A) $15,000
B) $61,000
C) $69,000
D) $72,000
E) $87,000

F) B) and E)
G) C) and E)

Correct Answer

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Two professors at a nearby university want to co-author a new textbook in either economics or statistics. They feel that if they write an economics book they have a 50% chance of placing it with a major publisher where it should ultimately sell about 40,000 copies. If they can't get a major publisher to take it, then they feel they have an 80% chance of placing it with a smaller publisher, with sales of 30,000 copies. On the other hand if they write a statistics book, they feel they have a 40% chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they can't get a major publisher to take it, they feel they have a 50% chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies. What is the expected payoff for the decision to write the statistics book?


A) 50,000 copies
B) 40,000 copies
C) 32,000 copies
D) 30,500 copies
E) 10,500 copies

F) B) and C)
G) B) and E)

Correct Answer

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The construction manager for ABC Construction must decide whether to build single family homes, apartments, or condominiums. He estimates annual profits (in $000) will vary with the population trend as follows: The construction manager for ABC Construction must decide whether to build single family homes, apartments, or condominiums. He estimates annual profits (in $000) will vary with the population trend as follows: What is his expected value of perfect information? A) $187,000 B) $132,000 C) $123,000 D) $65,000 E) $55,000 What is his expected value of perfect information?


A) $187,000
B) $132,000
C) $123,000
D) $65,000
E) $55,000

F) A) and E)
G) B) and E)

Correct Answer

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The operations manager for a local bus company wants to decide whether he should purchase a small, medium, or large new bus for his company. He estimates that the annual profits (in $000) will vary depending upon whether passenger demand is low, moderate, or high, as follows. The operations manager for a local bus company wants to decide whether he should purchase a small, medium, or large new bus for his company. He estimates that the annual profits (in $000) will vary depending upon whether passenger demand is low, moderate, or high, as follows. What is the expected annual profit for the bus that he will decide to purchase using Bayes' decision rule? A) $15,000 B) $61,000 C) $69,000 D) $72,000 E) $87,000 What is the expected annual profit for the bus that he will decide to purchase using Bayes' decision rule?


A) $15,000
B) $61,000
C) $69,000
D) $72,000
E) $87,000

F) A) and B)
G) A) and C)

Correct Answer

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Based on the following payoff table, answer the following:  Alternative  Yes  No  Brmall 1030 Medium 2040 Mediurn Large 3045 Large 4035 Extra Large 6020 Prior Probability 0.30.7\begin{array} { | l | r | r | } \hline { \text { Alternative } } & { \text { Yes } } & { \text { No } } \\\hline \text { Brmall } & 10 & 30 \\\hline \text { Medium } & 20 & 40 \\\hline \text { Mediurn Large } & 30 & 45 \\\hline \text { Large } & 40 & 35 \\\hline \text { Extra Large } & 60 & 20 \\\hline \text { Prior Probability } & 0.3 & 0.7 \\\hline\end{array} The expected value of perfect information is:


A) 4.5.
B) 9.
C) 40.5.
D) 49.5.
E) 60.

F) C) and E)
G) A) and B)

Correct Answer

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The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. She feels that script #1 has a 70% chance of earning $100 million over the long run, but a 30% chance of losing $20 million. If this movie is successful, then a sequel could also be produced, with an 80% chance of earning $50 million, but a 20% chance of losing $10 million. On the other hand, she feels that script #2 has a 60 % chance of earning $120 million, but a 40% chance of losing $30 million. If successful, its sequel would have a 50% chance of earning $80 million and a 50% chance of losing $40 million. As with the first script, if the original movie is a "flop," then no sequel would be produced. What is the expected payoff from selecting script #1?


A) $150 million
B) $90.6 million
C) $84 million
D) $72 million
E) $60 million

F) B) and D)
G) C) and E)

Correct Answer

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B

The construction manager for ABC Construction must decide whether to build single family homes, apartments, or condominiums. He estimates annual profits (in $000) will vary with the population trend as follows: The construction manager for ABC Construction must decide whether to build single family homes, apartments, or condominiums. He estimates annual profits (in $000) will vary with the population trend as follows: If he uses Bayes' decision rule, which kind of dwellings will he decide to build? A) Single family B) Apartments C) Condos D) Either single family or apartments E) Either apartments or condos If he uses Bayes' decision rule, which kind of dwellings will he decide to build?


A) Single family
B) Apartments
C) Condos
D) Either single family or apartments
E) Either apartments or condos

F) C) and D)
G) All of the above

Correct Answer

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Refer to the following payoff table: Refer to the following payoff table: There is an option of paying $100 to have research done to better predict which state of nature will occur. When the true state of nature is S1, the research will accurately predict S1 60% of the time. When the true state of nature is S2, the research will accurately predict S2 80% of the time. What is the posterior probability of S2 given that the research predicts S2? A) 0.18 B) 0.44 C) 0.57 D) 0.65 E) 0.82 There is an option of paying $100 to have research done to better predict which state of nature will occur. When the true state of nature is S1, the research will accurately predict S1 60% of the time. When the true state of nature is S2, the research will accurately predict S2 80% of the time. What is the posterior probability of S2 given that the research predicts S2?


A) 0.18
B) 0.44
C) 0.57
D) 0.65
E) 0.82

F) B) and E)
G) B) and C)

Correct Answer

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Payoff tables may include only non-negative numbers.

A) True
B) False

Correct Answer

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What is the role of the group facilitator in decision conferencing?


A) Lead the group to the desired outcome.
B) Structure and focus discussions.
C) Provide mathematical support for decision analysis.
D) Determine the states of nature.
E) Determine the payoffs for each alternative.

F) A) and E)
G) A) and D)

Correct Answer

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Refer to the following payoff table: Refer to the following payoff table: There is an option of paying $100 to have research done to better predict which state of nature will occur. When the true state of nature is S1, the research will accurately predict S1 60% of the time. When the true state of nature is S2, the research will accurately predict S2 80% of the time. What is the expected value of perfect information? A) 40 B) 45 C) 75 D) 85 E) 100 There is an option of paying $100 to have research done to better predict which state of nature will occur. When the true state of nature is S1, the research will accurately predict S1 60% of the time. When the true state of nature is S2, the research will accurately predict S2 80% of the time. What is the expected value of perfect information?


A) 40
B) 45
C) 75
D) 85
E) 100

F) A) and E)
G) C) and D)

Correct Answer

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B

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. She feels that script #1 has a 70% chance of earning $100 million over the long run, but a 30% chance of losing $20 million. If this movie is successful, then a sequel could also be produced, with an 80% chance of earning $50 million, but a 20% chance of losing $10 million. On the other hand, she feels that script #2 has a 60 % chance of earning $120 million, but a 40% chance of losing $30 million. If successful, its sequel would have a 50% chance of earning $80 million and a 50% chance of losing $40 million. As with the first script, if the original movie is a "flop," then no sequel would be produced. What is the expected payoff from selecting script #2?


A) $150 million
B) $90.6 million
C) $84 million
D) $72 million
E) $60 million

F) All of the above
G) C) and E)

Correct Answer

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verified

Prior probabilities refer to the relative likelihood of possible states of nature.

A) True
B) False

Correct Answer

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verified

Based on the following payoff table, answer the following:  Alternative  High  Low  Buy 90−10 Rent 7040 Lease 6055 Prior Probability 0.40.6\begin{array} { | l | r | r | } \hline { \text { Alternative } } & \text { High } & { \text { Low } } \\\hline \text { Buy } & 90 & - 10 \\\hline \text { Rent } & 70 & 40 \\\hline \text { Lease } & 60 & 55 \\\hline \text { Prior Probability } & 0.4 & 0.6 \\\hline\end{array} The Bayes' decision rule strategy is:


A) Buy.
B) Rent.
C) Lease.
D) High.
E) Low.

F) A) and D)
G) A) and B)

Correct Answer

verifed

verified

The head of operations for a movie studio wants to determine which of two new scripts they should select for their next major production. She feels that script #1 has a 70% chance of earning $100 million over the long run, but a 30% chance of losing $20 million. If this movie is successful, then a sequel could also be produced, with an 80% chance of earning $50 million, but a 20% chance of losing $10 million. On the other hand, she feels that script #2 has a 60 % chance of earning $120 million, but a 40% chance of losing $30 million. If successful, its sequel would have a 50% chance of earning $80 million and a 50% chance of losing $40 million. As with the first script, if the original movie is a "flop," then no sequel would be produced. What is the expected payoff for the optimum decision alternative?


A) $150 million
B) $90.6 million
C) $84 million
D) $72 million
E) $60 million

F) B) and D)
G) A) and B)

Correct Answer

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verified

Two professors at a nearby university want to co-author a new textbook in either economics or statistics. They feel that if they write an economics book they have a 50% chance of placing it with a major publisher where it should ultimately sell about 40,000 copies. If they can't get a major publisher to take it, then they feel they have an 80% chance of placing it with a smaller publisher, with sales of 30,000 copies. On the other hand if they write a statistics book, they feel they have a 40% chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they can't get a major publisher to take it, they feel they have a 50% chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies. What is the probability that the statistics book would wind up being placed with a smaller publisher?


A) 0.6
B) 0.5
C) 0.4
D) 0.3
E) 0

F) C) and D)
G) A) and D)

Correct Answer

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Two people who face the same problem and use the same decision-making methodology must always arrive at the same decision.

A) True
B) False

Correct Answer

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