The difference is the difference between the expected payoff that would be realized if the best alternative action were selected if we knew which state of nature would occur and the expected payoff under risk.
Maximax criterion
Maximin criterion
Expected utility
Expected value of perfect information
Expected value of sample information
The expected net gain of sampling equals the difference minus the cost of sampling.
Expected monetary value
Expected value of perfect information
Expected value of sampling information
Expected net gain of sampling
The maximin criterion is preferred by pessimistic decision makers.
Maximax
Maximin
Utility theory
Risk theory
Alternatives 1 and 2 in the following payoff table represent the two possible manufacturing strategies that the EKA manufacturing company can adopt. The level of demand affects the success of both strategies. The states of nature (Si) represent the levels of demand for the company products. S1, S2, and S3 characterize high, medium, and low demand, respectively. The payoff values are in thousands of dollars.
S1
S2
S3
Alternative (strategy) 1
110
80
70
Alternative (strategy) 2
60
120
50
The best alternative (course of action) for the EKA manufacturing company using the maximin criterion is strategy 2 and the best possible payoff is $50,000.
$50,000
$120,000
$100,000
$70,000
$80,000
Maximin is a criterion used when making decisions under uncertainty.
Uncertainty
Certainty
Risk
Alternatives
When making a decision in an environment of uncertainty, the likelihood of each state of nature can be estimated.
Certainty
Uncertainty
Risk
Alternatives
When making a decision in an environment of certainty, the decision maker knows which of the states of nature will actually occur.
Certainty
Uncertainty
Risk
Optimism
The maximax criterion for choosing among alternative actions assumes that the state of nature with the best payoff will be experienced.
Maximin
Certainty
Maximax
Decision
Maximax is a criterion used when making decisions under uncertainty.
a. certainty
b. uncertainty
c. risk
d. alternatives
If the decision maker has no knowledge about the likelihood of any of the states of nature occurring, then it can be stated that the decision maker is operating in an environment of uncertainty.
Certainty
Uncertainty
Risk
Optimism
The expected value criterion is best used when a large number of similar decisions will be made.
Expected monetary value
Expected value of perfect information
Expected value of sample information
Expected net gain of sampling
In utility analysis, a utility curve that shows a rapid increase in utility for initial amounts of money followed by a gradual leveling off for a larger amount of money is appropriate for a risk-averse decision maker.
Seeking
Averse
Neutral
None of the other choices is correct
In utility theory, a risk-neutral decision maker is an individual who will choose the decision alternative having the highest expected profit.
High-risk
Low-risk
Risk-neutral
Posterior
A person's utility is determined by the preferences he/she exhibits for decision choices involving risk.
Certainty
Uncertainty
Risk
Bayes’ Theorem
The expected utility of a decision maker is based upon his/her attitude toward risk.
Maximax
Maximin
Utility
Risk theory
The utility curve given below represents the preferences of a risk-averse decision maker
Risk-averse
Risk-neutral
Risk-seeking
None of the other choices is correct