Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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Define the goal of decision analysis and how different decision makers may approach risk in their terms of assessment utility.
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- How to write a problem formulation?arrow_forwardThe following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature. Decision Alternative If S1 d₁ d₂ States of Nature then ? $1 240 90 90 15 The probabilities for the states of nature are P(S₁) = 0.65, P(s₂) = 0.15, and P(s3) = 0.20. (a) What is the optimal decision strategy if perfect information were available? ; If S₂ then ? 90 65 ; If S3 then ? (b) What is the expected value for the decision strategy developed in part (a)? î (c) Using the expected value approach, what is the recommended decision without perfect information? What is its expected value? The recommended decision without perfect information is ? EV = (d) What is the expected value of perfect information? EVPI = îarrow_forwardExplain two approaches a seller can use to estimate variable consideration, and when each approach is likely to be more appropriate.arrow_forward
- State the differences between decision making under certainty, under risk, and under uncertainty.arrow_forwardHow does efficient frontier analysis (EFA) differ from other forms of complex risk assessment techniques? What limitations might an analyst encounter through the use of EFA? How can efficient frontier analysis results be communicated and utilized with non-mathematical decision makers?arrow_forwardCome up with a decision using MINIMAX REGRET CRITERION under conditions of uncertainty using the table below. The payoff values are expressed as LOSSES.Which decision alternative has the minimum payoff value of the maximum regret? Choices: -> A,B,C-> C,D,E-> E,F,G-> B,F,G-> C,G,Farrow_forward
- What would be the best way to estimate whether a piece of land could be used to manage an existing (at a profit) in the relatively short- and long-run? Explain what information you would need to make the decision what would be a “Second best” alternative to the criteria you picked first?arrow_forwardDecision theory under conditions of risk and uncertainty lends itself to severalmathematical techniques. Examine the difference maximin decision criterion and minimax regret decision criterion.arrow_forwardThis is the same payoff table used in questions 2 and 3. Below is a payoff table that lists four mortgage options: Decision 1-year ARM 3-year ARM 5-year Arm 30-year fixed Rates Rise $66,645 $62,857 $55,895 $52,276 Outcomes Rates Stable $43,650 $47,698 $50,894 $52,276 4) Which of the following decisions has the best average payoff? CA. 3-year ARM B. 1-year ARM CC. 5-year ARM CD. 30-year Fixed Rates Fall $38,560 $42,726 $48,134 $52,276arrow_forward
- Build-Rite Construction has received favorable publicity from guest appearances on a public TV home improvement program. Public TV programming decisions seem to be unpredictable, so Build-Rite cannot estimate the probability of continued benefits from its relationship with the show. Demand for home improvements next year may be either low or high. But Build-Rite must decide now whether to hire more employees, do nothing, or develop subcontracts with other home improvement contractors. Build-Rite has developed the following payoff table:arrow_forwardDescribe the DECISION MAKING UNDER RISK?arrow_forwardIn conducting a threats and risk assessment, what factors are used in calculating the initial risk values? Select one: a. Unmitigated likelihood and consequences b. Likelihood and consequencesarrow_forward
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