# MGMT 4340 American Graduate Decision Making under Uncertainty Questions 3. The number of bids for a contract received by a local authority follows the p

MGMT 4340 American Graduate Decision Making under Uncertainty Questions 3.

The number of bids for a contract received by a local authority follows the probability distribution below:

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No. of bids

0

1

2

3

Probability

0.15

0.25

0.55

0.05

The probability that the authority will receive at least 2 bids is:

A) 0.60
B) 0.40
C) 0.45
D) 0.55
5.

An investor will make a profit next week if either a share rises in price on the London stock market by the end of trading next Monday or if the value of the US dollar rises against the Euro by the end of trading next Tuesday. The probability of the first event is 0.2 and the probability of the second is 0.3. Both events can be considered to be independent. The probability that the investor will make a profit next week is:

A) 0.50
B) 0.44
C) 0.06
D) 0.10

6.

The following table shows the results of a survey of the attitudes of potential purchasers towards a proposed new design for a product. The customers were categorized according to their ages.

Would not purchase

the product

Would purchase

the product

Total number of

potential customers

Aged under 50

Aged 50 or over

Totals

23

61

84

47

19

66

70

80

150

Assuming that the survey is reliable, p(would purchase the product | aged under 50) is equal to:

A) 47/150
B) 66/150
C) 47/66
D) 47/70

7.

With reference to the table in Question 6, p(aged under 50 | would purchase the product) is equal to:

A) 47/66
B) 47/70
C) 70/150
D) 66/150
13.

Which of these statements about the expected monetary value (EMV) criterion is not true?

A) It only takes into account attributes that are measured in monetary terms
B) It gives the average (mean) payoff that a decision maker would receive if the decision was repeated a large number of times
C) It assumes that an increase in the payoff of a decision from \$1,000 to \$2,000 will be as attractive to the decision maker as an increase from \$101,000 to \$102,000
D) It will always reflect the preferences of a risk averse decision maker
15.

A manager choosing a marketing strategy for a new product indicates that she would be indifferent between achieving a 6% market share for certain within three years or adopting a risky strategy. This would yield either the best possible market share within three years of 11% with a probability of 0.7 and the worst possible market share of 1% with a probability of 0.3. Assuming that utilities are measured on a 0 to 1 scale, her utility for a 6% market share is:

A) 0.3
B) 0.5
C) 0.7
D) Impossible to determine based on the information given
18.

When mutual utility independence exists in a decision problem it:

A) Means that a decision can be based on expected monetary values
B) Implies that the decision maker is risk neutral in relation to all attributes
C) Enables single attribute utility functions to be assessed separately for each attribute
D) Means that multi-attribute utilities can be obtained simply by adding utilities obtained for the different attributes
19.

A decision maker is facing a decision involving two attributes and will be using the following formula to obtain multi-attribute utilities: u(x1, x2) = k1u(x1) + k2u(x2) + k3u(x1)u(x2) where x1 = the level of attribute 1 and x2 = the level of attribute 2. The value of k1 can be obtained by identifying when the decision maker will be indifferent between a lottery which will either result in both attributes being at their best values, or both at their worst values and an option where it is certain that:

A) Attribute 1 will be at its worst value and attribute 2 at its best value
B) Both attributes will be at their worst values
C) Attribute 1 will be at its best value and attribute 2 at its worst value
D) Both attributes will be at their best values
20.

In a decision problem involving two attributes the difference between the worst and best levels of attribute 1 is much more important to a decision maker than the corresponding difference on attribute 2. Given the formula displayed in Question 19, which of these statements is true?

A) No inferences relating to k1, k2 or k3 can be discerned from the information provided
B) k2 will be larger than k1
C) k3 will be larger than k1
D) k1 will be larger than k2

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