12.3 Expected Value and Sensitivity Analysis

Question 1

A widely used approach that managers use to recognize uncertainty about individual items and to obtain an immediate financial estimate of the consequences of possible prediction errors is

Answer 1

Sensitivity Analysis

After a problem has been formulated into any mathematical model, it may be subjected to sensitivity analysis, which examines how the model’s outcomes change as the parameters change.

Question 2

Difference between the expected profit under certainty and the expected monetary value of the best act under uncertainty is

Answer 2

the expected value of perfect information

Question 3

In decision making under conditions of uncertainty, expected value refers to the

Answer 3

weighted average of probable outcomes of an action

Question 4

Sum of the conditional profit (loss) for each event times the probability of each event’s occurence.

Answer 4

Expected monetary value

Question 5

A widely used approach that managers use to recognize uncertainty about individual items and to obtain an immediate financial estimate of the consequences of possible prediction errors is

Answer 5

sensitivity analysis

Question 6

After a problem has been formulated into any mathematical model, it may be subjected to

Answer 6

sensitivity analysis

Question 7

__________ examines how the model’s outcomes change as the parameters change.

Question 8

The probabilistically weighted average of the outcome of an action

Answer 8

expected value