MOGADISHU
Operation Research UNIVERSITY
Assignment for Chapter Three
Part One: Multiple Choice
1) In decision theory terminology, course of action or a strategy that may be
chosen by decision maker is called:
a) A payoff.
b) An alternative.
c) A state of nature.
d) None of the above.
2) In decision theory, probabilities are associated with
a) Payoffs.
b) Alternatives.
c) States of nature.
d) None of the above.
3) If probabilities are available to the decision maker, then
The decision-making environment is called
a) Certainty.
b) Uncertainty.
c) Risk.
d) None of the above.
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MOGADISHU
Operation Research UNIVERSITY
4) Which of the following is a decision-making criterion
That is used for decision making under risk?
a) .expected monetary value criterion
b) Hurwitz criterion (criterion of realism)
c) Optimistic (maximax) criterion
d) Equally likely criterion
5) The minimum expected opportunity loss
a) is equal to the highest expected payoff.
b) is greater than the expected value with perfect
Information.
c) is equal to the expected value of perfect information.
d) Is computed when finding the minimax regret decision.
6) In using the criterion of realism (Hurwitz criterion), the Coefficient of
realism
a) Is the probability of a good state of nature
b) Describes the degree of optimism of the decision maker.
c. describes the degree of pessimism of the decision maker.
d. is usually less than zero.
7) The most that a person should pay for perfect Information is
a) The EVPI.
b) .the maximum EMV minus the minimum EMV.
c) The maximum EOL.
d) The maximum EMV
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MOGADISHU
Operation Research UNIVERSITY
8) The minimum EOL criterion will always result in the Same decision as
a) The maximax criterion.
b) The minimax regret criterion.
c) The maximum EMV criterion.
d) The equally likely criterion.
9) Which of the following are types of decision-making environments?
a. Decision making under uncertainty
b. Decision making under certainty
c. Decision making under risk
d. All of the above
10) A good Decision always implies that we:
a. Will obtain the best final results
b. Have followed a logical process
c. Have used appropriate quantitative analysis
d. Have considered all alternatives
11) All of the following are steps in the decision making process except:
a. Compute the posterior probabilities
b. List alternatives
c. List payoffs
d. Define the problem
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MOGADISHU
Operation Research UNIVERSITY
12) The Equally Likely decision criterion is also known as
a. Bayes
b. Laplace
c. Minimax
d. Hurwitz
13) Opportunity loss refers to:
a. The expected value of a bad decision
b. The expected loss from a bad decision
c. The difference between the actual pay off and the optimal payoff
d. None of the above
14) The Criteria of expected monetary value is used for making decision
under:
a. Certainty
b. Uncertainty
c. Risk
d. All above
15) Which of the following might be viewed as an ‘’optimistic’ ’decision
criterion?
a. Hurwitz Criterion
b. Maximax
c. Maximin
d. Minimax
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MOGADISHU
Operation Research UNIVERSITY
Part Two: True-False Items
1) Expected Monetary value (EMV) is the average or expected monetary outcome
of a decision, if it can be repeated a large number of times. ( )
2) Expected monetary value (EMV) is the payoff you should expect to occur when
you choose a particular alternative. ( )
3) The decision maker has a little or no control over a state of nature. ( )
4) Decision making under risk is a probabilistic Decision situation. ( )
5) The difference in decision making under risk and decision making under
uncertainty is that under risk, we think we know the probabilities of the states of
nature, while under uncertainty, we do not know the probabilities of the states of
nature.( )
6) The maximax Decision criterion is used by pessimistic decision makers and
maximizes the maximum outcome for every
Alternative. ( )
7) EVPI (expected value of perfect information) is a measure of the maximum
value of additional information. ( )
8) The maximin Decision criterion is used by pessimistic decision makers and
minimizes the maximum outcome for every
Alternative. ( )
9) Marginal analysis is an aid to decision making when there are a large number of
alternatives and or states of nature. ( )
10) When using the EOL as a decision criterion, the best decision is the alternative
with the least EOL value. ( )
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MOGADISHU
Operation Research UNIVERSITY
11) When the coefficient is close to zero, the decision criterion is optimistic. ( )
12) When the coefficient is close to one, the decision criterion is pessimistic. ( )
13) The several criteria (maximax , maximin, equally likely, criterion of realism
,minimax )used for decision making under uncertainty may lead to the choice of
alternatives. ( )
14) A bad decision is a based on logic. ( )
15) Decision making under certainty means no probability. ( )
Part Three: Direct Questions
1. Give an example of a good decision that you made that resulted in a bad
outcome .Also give an example of a bad decision that you made that had a
good outcome .Why was each decision good or bad?
2. Describe what is involved in the decision process.
3. What is an alternative? What is a state of nature?
4. Discuss the differences among decision making under certainty, decision
making under risk, and decision making under uncertainty.
5. What techniques are used to solve decision-making?
Problems under uncertainty? Which technique results in an optimistic decision?
Which technique results in a pessimistic decision?
6. Define opportunity loss. What decision-making
Criteria are used with an opportunity loss table?
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MOGADISHU
Operation Research UNIVERSITY
Part Four: problems
1. Solve by the following Criterion to find best decision
a. Optimistic ( Maximax)
b. Pessimistic (Maximin )
c. Criterion of Realism ( Hurwicz )
d. Equally Likely ( Laplace )
e. Minimax Regret ( Opportunity Loss )
𝘢 = 0.8
Alternative 𝑠1 𝑠2 𝑠3
𝐴1 30 20 40
𝐴2 25 35 30
𝐴3 22 20 35
2. Compute the following:
a) Expected monetary value ( EMV )
b) Expected value of perfect information( EVPI )
c) Expected Opportunity Loss ( EOL )
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MOGADISHU
Operation Research UNIVERSITY
Alternative 𝑠1 𝑠2 𝑠3
𝑑1 12 9 3
𝑑2 15 11 8
𝑑3 5 18 10
probability 0.3 0.5 0.2
3. Maria Rojas is considering the possibility of opening a small dress shop on Fair
banks Avenue, few
Blocks from the university. She has located a good mall that attracts students. Her
options are to open a Small shop, medium-sized shop, or no shop at all. The market
for address shop can be good, average, or Bad.
The probabilities for these three possibilities are 0.2 for good market,0.5 for an
average market, And 0.3 for a bad market. The net profit or loss for the medium-
sized and small shops for the various market conditions are given in the following
table.
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MOGADISHU
Operation Research UNIVERSITY
Building no shop at all yields no loss and no gain.
a. What do you recommend?
b. Calculate the EVPI.
c. Develop the opportunity loss table for this situation .What decisions would be
made using the minimax regret criterion and the minimum EOL criterion?
Good Lucky
