(T/F): Rational people maximize Utility when making personal decisions, but when making business decisions, they maximize profit
FALSE
(T/F): Maximax, Maximin, and Minimax Regret are models for Decision Making Under Uncertainty and can be used to make decisions without the use of probabilities
TRUE
(T/F): Sensitivity Analysis looks at how the optimum decision changes as different "States of Nature" are considered
FALSE
(T/F): Given the exact same problem, alternatives, possible outcomes, probabilities, and net payoffs, using different Decision Theory models will result in the same logical decision
FALSE
(T/F): Decision Making Under Risk refers to scenarios where the decision maker does not know the possible outcomes and/or does not know the probabilities of the various outcomes
FALSE
(T/F): EVPI represents the most one should pay for information regarding the "state of Nature" (assuming the information is 100% correct) and it is the difference between the EMV with perfect information and EMV without that information
TRUE
Entrepreneurs take calculated risks and consider ventures with E(V) > 0, which means their Utility Curve is ___.
A) Concave
B) Convex
C) Such that they get more utility from greater risk
D) Both A and C
E) Both B and C
A) Concave
In the Expected Opportunity Loss Model of decision making:
A) The minimum EOL points to the same decision as Maximin EMV
B) One looks at the cost of opportunity lost for not having chosen the best options
C) The minimum EOL will always equal to EVPI
D) Al
D) All of the above
In order for a rational person to be indifferent between $100 with certainty vs. X% chance of winning $150 and (1-X%) chance of winning $50, X would need to be _____ for a RISK NEUTRAL person, ______ for a RISK SEEKER person, and _____ for a RISK AVOIDER
D) Equal to 50%; Less than 50%; Greater than 50%
The EMV of a decision that has possible outcomes of A, B, and C with respective probabilities of P1, P2, P3 is:
A) (A + B + C)(P1 + P2 + P3)
B) (A x B x C)(P1 x P2 x P3)
C) (A)(P1) + (B)(P2) + (C)(P3)
D) (A + P1) + (B + P2) + (C + P3)
E) None of the above
C) (A)(P1) + (B)(P2) + (C)(P3)
In Utility Theory Model of decision making, ___________.
A) The overall value of a decision is called Net Value
B) Economist believe that rational people make decisions to maximize profit
C) It is believed that decisions are not necessarily made by maximi
C) It is believed that decisions are not necessarily made by maximizing the EMV and money is not always the deciding factor in choosing an optimum decision
Based on the following Payoff Table, one would choose Alternative 2. Suppose there is a concern about the accuracy of probabilities of State of Nature, A and B. It can be stated that Alternative 2 will remain the best alternative as long as the probabilit
B) 34%
Based on the above Payoff Table, what is the maximum you would pay for a perfect forecast of the State of Nature?
A) 30
B) 50
C) 10
D) 100
E) 40
A) 30
EC: Using Decision Theory, how would you explain a rational person taking on a deal with EMV < 0?
Expected Utility is greater