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Chapter 05S - Supplement: Decision Theory Chapter 05S Supplement: Decision Theory True / False Questions 1. Decision trees, with their predetermined analysis of a situation, are really not useful in making health care decisions since every person is unique. FALSE AACSB: RT Difficulty: Easy TLO: 1 Taxonomy: Synthesis 2. Bounded rationality refers to the limits imposed on decision-making because of costs, human abilities, time, technology, and/or availability of information. TRUE Difficulty: Easy TLO: 1 Taxonomy: Knowledge 3. In reaching a decision, the alternative with the lowest cost should be ranked #1. FALSE Difficulty: Medium TLO: 1 Taxonomy: Knowledge 5-1
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Chapter 05S - Supplement: Decision Theory 4. The expected monetary value approach is most appropriate when the decision-maker is risk-neutral. TRUE Difficulty: Medium TLO: 3 Taxonomy: Knowledge 5. The value of perfect information is inversely related to losses predicted. FALSE Difficulty: Hard TLO: 5 Taxonomy: Knowledge 6. Expected monetary value gives the long-run average payoff if a large number of identical decisions could be made. TRUE Difficulty: Medium TLO: 3 Taxonomy: Knowledge 7. Among decision environments, risk implies that certain parameters have probabilistic outcomes. TRUE Difficulty: Medium TLO: 1 Taxonomy: Knowledge 5-2
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Chapter 05S - Supplement: Decision Theory 8. Among decision environments, uncertainty implies that states of nature have wide ranging probabilities associated with them. FALSE Difficulty: Medium TLO: 1 Taxonomy: Knowledge 9. In decision theory, states of nature refer to possible future conditions. TRUE Difficulty: Easy TLO: 1 Taxonomy: Knowledge 10. The maximin approach involves choosing the alternative with the highest payoff. FALSE Difficulty: Hard TLO: 2 Taxonomy: Knowledge 11. The maximin approach involves choosing the alternative that has the "best worst" payoff. TRUE Difficulty: Medium TLO: 2 Taxonomy: Knowledge 12. The Laplace criterion treats states of nature as being equally likely. TRUE Difficulty: Medium TLO: 2 Taxonomy: Knowledge 5-3
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13. The maximax approach is a pessimistic strategy. FALSE Difficulty: Medium TLO: 2 Taxonomy: Knowledge 14. A weakness of the maximin approach is that it loses some information. TRUE Difficulty: Medium TLO: 2 Taxonomy: Knowledge 15. The expected value approach applies to decision-making under uncertainty. FALSE Difficulty: Medium TLO: 3 Taxonomy: Knowledge 16. The expected value approach is used for decision-making under risk. TRUE Difficulty: Easy TLO: 3 Taxonomy: Knowledge 17. The EVPI indicates an upper limit on the amount a decision-maker should be willing to spend to obtain additional information. TRUE
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