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Unformatted text preview: pic: Decision Theory 1-1908 Chapter 01 - An Introduction to Business Statistics 3. The maximax criterion finds the worst possible payoff for each alternative and then chooses the alternative that yields the maximum payoff. FALSE AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Decision Theory 4. The maximin criterion finds the best possible payoff for each alternative and then chooses the alternative that yields the maximum payoff. FALSE AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Decision Theory 5. A tire manufacturer needs to make a decision about the amount of production for the coming month (high vs. low). The level of production largely depends on the level of demand. For this situation, the level of demand (high, medium, low) is the states of nature. TRUE AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Decision Theory 1-1909 Chapter 01 - An Introduction to Business Statistics 6. Maximin is a criterion used when making decisions under certainty. FALSE AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Decision Theory 7. Maximax is a criterion used when making decisions under uncertainty. TRUE AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Decision Theory 8. The maximin criterion is preferred by optimistic decision-makers. FALSE AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Easy Learning Objective: 1 Topic: Decision Theory 9. When the maximin criterion is used, the decision-maker assumes that for any alternative action, the state of nature with the maximum payoff will take place. FALSE AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Decision Theory 1-1910 Chapter 01 - An Introduction to Business Statistics 10. A decision-maker's expected utility is based upon his/her attitude towards risk. TRUE AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Easy Learning Objective: 3 Topic: Utility Theory 11. The maximax criterion is preferred by pessimistic decision-makers. FALSE AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Easy Learning Objective: 1 Topic: Decision Theory 12. The maximax criterion finds the best possible payoff for each alternative, and then chooses the alternative that yields the maximum (best) possible payoff. TRUE AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Easy Learning Objective: 1 Topic: Decision Theory 13. The expected monetary value criterion is best used when a large number of similar decisions will be made. TRUE AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Decision Theory 1-1911 Chapter 01 - An Introduction to Business Statistics 14. When we use the expected monetary value criterion, the expected payoff equals the actual payoff that will be realized. FALSE AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Decision Theory 15. The alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt. The level of demand affects the success of both strategies. The states of nature (SI) represent the levels of demand for the company products. S1, S2 and S3 characterize high, medium, and low demand respectively. The payoff values are in thousands of dollars. The best alternative (course of action) for the EKA manufacturing company using the maximax criterion is alternative 1. FALSE AACSB: Reflective Thinking Bloom's: Evaluation Difficulty: Medium Learning Objective: 1 Topic: Decision Theory 16. In utility analysis, a utility curve that shows a rapid increase in utility for initial amounts of money followed by a gradual leveling off for larger amounts of money is appropriate for a risk seeking decision maker. FALSE AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Hard Learning Objective: 3 Topic: Utility Theory 1-1912 Chapter 01 - An Introduction to Business Statistics Multiple Choice Questions 17. Maximin is a criterion used when making decisions under _____________. A. Uncertainty B. Certainty C. Risk D. Alternatives AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Decision Theory 18. If the decision maker has no knowledge about the likelihood of any of the states of nature occurring, then it can be stated that the decision maker is operating in an environment of: A. Certainty B. Uncertainty C. Risk D. Optimism AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Decision Theory 19. When making a decision in an environment of ________________, the decision maker knows which of the states of nature will actually occur. A. Certainty B. Uncertainty C. Risk D. Optimism AACSB: Reflective Thinking Bloom's: Knowledge Difficulty: Medium Learning Objective: 1 Topic: Decision Theory 1-1913 Chapter 01 - An Introduction to Business Statistics 20. When making...
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