Decision Analysis

Description: This quiz covers the fundamental concepts and techniques used in Decision Analysis, a branch of Operations Research that helps decision-makers make optimal choices in the face of uncertainty.
Number of Questions: 15
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Tags: decision analysis decision making uncertainty expected value bayesian analysis
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What is the primary goal of Decision Analysis?

  1. To eliminate uncertainty from decision-making.

  2. To maximize the likelihood of making the correct decision.

  3. To identify the best course of action given available information.

  4. To minimize the potential consequences of making a wrong decision.


Correct Option: C
Explanation:

Decision Analysis aims to provide a structured framework for evaluating and comparing alternative courses of action, taking into account factors such as uncertainty, preferences, and potential outcomes.

Which of the following is NOT a key element of a decision problem?

  1. Alternatives

  2. States of Nature

  3. Payoffs

  4. Decision Maker's Preferences


Correct Option: B
Explanation:

States of Nature are external factors that are beyond the decision-maker's control and can affect the outcome of the decision. They are not a key element of a decision problem because they are not directly influenced by the decision-maker's choice of alternative.

What is the expected value of a decision alternative?

  1. The sum of the payoffs for all possible outcomes, weighted by their probabilities.

  2. The payoff associated with the most likely outcome.

  3. The average payoff across all possible outcomes.

  4. The payoff associated with the worst-case scenario.


Correct Option: A
Explanation:

The expected value of a decision alternative is a measure of its overall desirability, taking into account the likelihood of each possible outcome and the associated payoff.

Which decision criterion is most appropriate when the decision-maker is risk-averse?

  1. Maximax

  2. Minimax

  3. Expected Value

  4. Hurwicz Criterion


Correct Option: B
Explanation:

The Minimax criterion is designed for risk-averse decision-makers who seek to minimize the potential losses associated with their decision. It involves selecting the alternative with the highest minimum payoff across all possible states of nature.

What is the purpose of sensitivity analysis in Decision Analysis?

  1. To identify the most influential factors in a decision problem.

  2. To assess the impact of changes in input parameters on the optimal decision.

  3. To evaluate the robustness of the decision to changes in assumptions.

  4. All of the above.


Correct Option: D
Explanation:

Sensitivity analysis is a technique used to explore how changes in input parameters, assumptions, or other factors affect the optimal decision. It helps decision-makers understand the robustness of their decisions and identify potential vulnerabilities.

Which of the following is NOT a type of decision tree analysis?

  1. Expected Value Decision Tree

  2. Influence Diagram

  3. Risk Profile Decision Tree

  4. Certainty Equivalent Decision Tree


Correct Option: B
Explanation:

Influence Diagrams are not a type of decision tree analysis. They are a graphical representation of decision problems that allow decision-makers to visualize the relationships between decision variables, states of nature, and payoffs.

What is the role of Bayesian Analysis in Decision Making under Uncertainty?

  1. To incorporate prior knowledge and beliefs into the decision-making process.

  2. To update probabilities based on new information or evidence.

  3. To calculate the expected value of a decision alternative.

  4. To identify the optimal decision under risk.


Correct Option: A
Explanation:

Bayesian Analysis is a statistical method that allows decision-makers to incorporate prior knowledge and beliefs into the decision-making process. It uses Bayes' Theorem to update probabilities based on new information or evidence, providing a more informed basis for decision-making.

Which decision criterion is most appropriate when the decision-maker is risk-seeking?

  1. Maximax

  2. Minimax

  3. Expected Value

  4. Hurwicz Criterion


Correct Option: A
Explanation:

The Maximax criterion is designed for risk-seeking decision-makers who seek to maximize the potential gains associated with their decision. It involves selecting the alternative with the highest maximum payoff across all possible states of nature.

What is the purpose of a utility function in Decision Analysis?

  1. To convert monetary payoffs into a common scale of desirability.

  2. To represent the decision-maker's preferences for different outcomes.

  3. To calculate the expected value of a decision alternative.

  4. To identify the optimal decision under risk.


Correct Option: B
Explanation:

A utility function is a mathematical representation of the decision-maker's preferences for different outcomes. It allows decision-makers to compare and rank alternatives based on their subjective values, rather than relying solely on monetary payoffs.

Which of the following is NOT a common type of uncertainty in Decision Analysis?

  1. Risk

  2. Ambiguity

  3. Ignorance

  4. Determinism


Correct Option: D
Explanation:

Determinism is not a type of uncertainty in Decision Analysis. It refers to situations where the outcome of a decision is known with certainty, leaving no room for uncertainty or risk.

What is the role of scenario analysis in Decision Analysis?

  1. To identify potential future events or outcomes.

  2. To assess the impact of different scenarios on the decision outcome.

  3. To develop contingency plans for various scenarios.

  4. All of the above.


Correct Option: D
Explanation:

Scenario analysis is a technique used to explore different possible future events or outcomes and assess their impact on the decision outcome. It helps decision-makers identify potential risks and opportunities, and develop contingency plans to address various scenarios.

Which decision criterion is most appropriate when the decision-maker is indifferent to risk?

  1. Maximax

  2. Minimax

  3. Expected Value

  4. Hurwicz Criterion


Correct Option: C
Explanation:

The Expected Value criterion is most appropriate when the decision-maker is indifferent to risk. It involves selecting the alternative with the highest expected value, which represents the average payoff across all possible states of nature.

What is the purpose of a decision matrix in Decision Analysis?

  1. To summarize the payoffs associated with different alternatives and states of nature.

  2. To calculate the expected value of each decision alternative.

  3. To identify the optimal decision under different criteria.

  4. All of the above.


Correct Option: D
Explanation:

A decision matrix is a tabular representation of the payoffs associated with different alternatives and states of nature. It allows decision-makers to visualize the decision problem and compare alternatives more easily. It can also be used to calculate the expected value of each decision alternative and identify the optimal decision under different criteria.

Which of the following is NOT a type of decision analysis model?

  1. Influence Diagram

  2. Decision Tree

  3. Markov Decision Process

  4. Linear Programming


Correct Option: D
Explanation:

Linear Programming is not a type of decision analysis model. It is an optimization technique used to solve linear mathematical problems with constraints.

What is the role of sensitivity analysis in Decision Analysis?

  1. To identify the most influential factors in a decision problem.

  2. To assess the impact of changes in input parameters on the optimal decision.

  3. To evaluate the robustness of the decision to changes in assumptions.

  4. All of the above.


Correct Option: D
Explanation:

Sensitivity analysis is a technique used to explore how changes in input parameters, assumptions, or other factors affect the optimal decision. It helps decision-makers understand the robustness of their decisions and identify potential vulnerabilities.

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