Unit 4: Expected Value (19% of the Assessment)

Question 1

Abbreviation for decision-making method with several states of nature and known likelihoods

Answer 1

emv

Question 2

Similar to a decision tree except that it uses a table instead of a graphical representation of the data

Answer 2

pay off table

Question 3

Step 8 of the decision-making model

Answer 3

Evaluate the decision

Question 4

Step 1 of the decision-making model

Answer 4

Identify the problem

Question 5

A possible outcome on a decision tree that would be out of the decision maker’s control

Answer 5

State of nature node

Question 6

A point where one of several alternatives can be selected

Answer 6

Decision point

Question 7

A non-quantifiable value because the future events are not predictable

Answer 7

uncertainty

Question 8

Step 4 of the decision making model

Answer 8

generate alternatives

Question 9

Tool that can be used to visualize important aspects of a problem

Answer 9

Decision tree

Question 10

Step 5 of the decision-making model. Do this to the alternatives.

Answer 10

Evaluate

Question 11

Step 7 of the decision-making model. Do this to the decision.

Answer 11

Implement

Question 12

Step 2 of the decision - making model. Do this to the criteria.

Answer 12

Establish

Question 13

Step 6 of the decision - making model. Do this to the best alternative.

Answer 13

Choose

Question 14

Step 3 of the decision - making model. Do this to the criteria.

Answer 14

Weigh

Question 15

Known possibility measured by its probability of occurrence.

Answer 15

Risk

Question 16

A non-quantifiable value because the future events are not predictable

Answer 16

uncertainty

Question 17

A point where on e of several alternatives can be selected

Answer 17

decision point

Question 18

A possible outcome on a decision tree that would be out of the decision maker’s control

Answer 18

state of nature node

Question 19

Known possibility measured by its probability of occurrence

Answer 19

risk

Question 20

Method used for decision making when the risks involved in a decision situation have several states of nature and the likelihood, or probability, of each state is known

Answer 20

expected monetary value

Question 21

Similar to a decision tree except that it uses a table instead of a graphical representation of the data

Answer 21

payoff table

Question 22

Step 1 of the decision-making model

Answer 22

identify the problem

Question 23

Step 2 of the decision - making model

Answer 23

establish decision criteria

Question 24

Step 3 of the decision-making model

Answer 24

weigh decision criteria

Question 25

Step 4 of the decision-making model

Answer 25

generate alternatives

Question 26

Step 5 of the decision-making model

Answer 26

evaluate the alternatives

Question 27

Step 6 of the decision-making model

Answer 27

choose the best alternative

Question 28

Step 7 of the decision-making model

Answer 28

implement the decision

Question 29

Step 8 of the decision-making model

Answer 29

evaluate the decision

Question 30

Tool that can be used to visualize important aspects of a problem

Answer 30

decision tree

Question 31

Ts4U is opening a new location for an outlet store. They are deciding between either building a new warehouse on the outskirts of town or remodeling a building inside the city limits. The following decision tree shows the probability for strong and weak sales at each of the two locations under consideration, as well as the expected payoffs at each of them. What is the expected payoff for Building a New Warehouse? Building a New Warehouse Strong Payoff: 70% - $265,425 Weak Payoff: 30% - $20,150 Remodel a Building in the City Strong Payoff: 80% - $225,150 Weak Payoff: 20% - $50,765

Answer 31

``` Answer: $191,842.50 $265,425*70% + $20,150*30% -->265,425*0.70 + 20,150*0.30 --->185,797.50 + 6,045.00 ---->191,842.50 ```

Question 32

Ts4U is opening a new location for an outlet store. They are deciding between either building a new warehouse on the outskirts of town or remodeling a building inside the city limits. The following decision tree shows the probability for strong and weak sales at each of the two locations under consideration, as well as the expected payoffs at each of them. What is the expected payoff for Remodeling a Building in the City? Building a New Warehouse Strong Payoff: 70% - $265,425 Weak Payoff: 30% - $20,150 Remodel a Building in the City Strong Payoff: 80% - $225,150 Weak Payoff: 20% - $50,765

Answer 32

``` Answer: $190,273.00 $225,150*80% + $50,765*20% -->225,150*0.80 + 50,765*0.20 --->180,120.00 + 10,153.00 ---->190,273.00 ```