Question 81) A company is considering producing a new children’s b

81) A company is considering producing a new children’s bar soap. A market research firm has told the company that if they perform a survey, a positive survey of a favorable market occurs 65 percent of the time. That is, P(positive survey? favorable market) = 0.65. Similarly, 40 percent of the time the survey falsely predicts a favorable market; thus, P(positive survey? unfavorable market) = 0.40. These statistics indicate the accuracy of the survey. Prior to contacting the market research firm, the company’s best estimate of a favorable market was 50 percent. So, P(favorable market) = 0.50 and P(unfavorable market) = 0.50. Using Bayes’ theorem, determine the probability of a favorable market given a favorable survey.

A) 0.62

B) 0.38

C) 0.53

D) 0.65

E) None of the above

82) The Hurwicz criterion coefficient of realism measures the decision maker’s degree of

A) utility.

B) pessimism.

C) certainty.

D) optimism.

E) regret.

83) What is the range of the Hurwicz criterion coefficient of realism ??

A) 1 to 100

B) 1 to 10

C) 0 to 10

D) 0 to 1

E) ?1 to 1

84) Utilization of Bayes’ theorem requires the use of all but

A) prior probabilities.

B) marginal probabilities.

C) conditional probabilities.

D) posterior probabilities.

E) expected monetary values (EMV).

85) A risk avoider is a person for whom the utility of an outcome

A) decreases as the monetary value increases.

B) stays the same as monetary value increases.

C) increases at an increasing rate as the monetary value increases.

D) increases at a decreasing rate as monetary value increases.

E) None of the above

86) A utility curve showing utility increasing at an increasing rate as the monetary value increases represents

A) a risk avoider.

B) utility assessment.

C) a risk seeker.

D) conditional values.

E) expected utilities.

87) In constructing a utility curve,

A) a comparison is made of the different amounts of money at different times.

B) the certainty of a certain amount is compared with the willingness to gamble that amount on a larger amount.

C) one takes the risk out of gambling.

D) inflation plays a critical part in the evaluation.

E) None of the above

88) Utility values typically range from

A) -1 to 1.

B) 1 to 10.

C) 0 to 1.

D) 1 to 100.

E) None of the above

89) A rational decision maker must choose between two alternatives. Alternative 1 has a higher EMV than Alternative 2, but the decision maker chooses Alternative 2. What might explain why this occurs?

A) Alternative 2 may have a higher expected utility.

B) Alternative 1 may have a lower expected opportunity loss.

C) The probabilities are not known.

D) A rational decision maker could not possibly choose alternative 2.

E) None of the above

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