Decision Models Midterm Exam

EMGT 54403 Midterm Exam Study Guide

What is a good decision?

One that is logically consistent with our preferences for the potential outcomes, our alternatives, and our assessment of the uncertainties.

True or False: Decision Analysis is largely an intuitive process

False

A good outcome is

The occurrence of a favorable event - one that we like.

According to Howard, a decision is

An irrevocable allocation of resources.

True or False: During the decision process, decision analysts often obtain information from subject matter experts (SME).

True

According to the authors, decision analysis is a ___________ process

Socio-technical

True of False: Decisions should be made without consideration of organizational or environmental factors.

False

True or False: All the steps in the decision-making process must be completed in the same order for any decision.

False

Anchoring and Adjustment Bias

Relying too heavily or "anchoring" on a piece of information and failing to adequately adjust from that anchor.

Availability Bias

Predicting frequencies or probabilities of events based upon how easily an example can be retrieved by memory.

Confirmation Bias

Searching or interpreting information in a way that confirms one's preconceptions.

Framing Effect

Drawing different conclusions from the same information depending on how that information is presented.

According to the handbook, which of the following is not an organizational decision-making level:

Individual

According to the textbook, technical knowledge is essential for _________, business knowledge is essential for _________.

Credibility and success.

True or False: Decision analysis must be based on sound objectives.

True

According to the Handbook, all of the following are dimensions of decision complexity except:

Financial complexity

Match the decision to the barrier or trap: A group of analysts and stakeholders has been brought together to evaluate alternatives in a one-day working session. There is limited exchange of information and the group never gets to a consensus recommendation because they spent most of the day trying to agree upon the process they would use and bickering over small details. The group never had a common sense of purpose and wasn't committed to the results.

Group failure

Match the decision to the barrier or trap: Millions of dollars were spent years ago to reduce damage to crops caused by mechanical tomato pickers. The problem was described as "develop a better mechanical tomato picker to keep from damaging the tomato crops."  After early efforts were unsuccessfuly, the problem was reframed as "reduce damage to the tomato crops currently caused by mechanical tomato pickers." As a result, the problem was solved by developing a thicker skinned tomato.

Frame blindness / Inadequate problem formulation

Match the decision to the barrier or trap:
A team of analysts spent a significant amount of time analyzing a problem through open, unstructured discussions that completely relied on qualitative, intuitive judgments such as looking at pros and cons of the alternatives. They came to consensus on the best alternative, but were unable to effectively defend it to the decision maker because they kept track of what they found in their heads, and "winged it" instead of using systematic procedures to document the reasons for their conclusions. That made it difficult to defend their recommendation to the decision maker.

Shooting from the hip

Match the decision to the barrier or trap: A highly experienced senior analyst spent several months gathering data to evaluate three companies that his firm was considering buying. The deadline for making a recommendation was very close, yet he felt that he couldn't make a recommendation since he didn't have "all" of the data. He feared making the wrong decision and concluded that he was better off making no decision yet. He decide to tell the decision maker that he wasn't prepared yet to make a recommendation - they needed more time to gather more data. As a result of the delay, the company lost the opportunity.

Decision paralysis

True or False: A MODA model can evaluate value measures as a single value metric via a multi-dimensional value function which can then be transformed into utility through a single dimensional utility function.

True

True or False: A MODA model can evaluate value measures as utility directly through a single dimensional utility function.

True

True or False: Decision makers risk preferences are essential inputs to any MODA approach that is used.

True

True or False: Decision makers trade-off preferences are only necessary if a multi-dimensional value function is used.

False

The probability rule

requires that you can fully describe any deal in terms of possibilities and probabilities

The substitution rule

requires that your preference for a prospect will not change if an uncertain deal contained in the prospect is replaced by its certain equivalent, or vice versa

The order rule

requires that you can rank any set of prospects in order of preference from best to worst

The equivalence rule

requires that you can always create an uncertain deal involving two prospects such that you would be indifferent between receiving that deal and receiving a third prospect that is intermediate in your preference ranking between the two prospects in the deal

The choice rule

requires that if given the choice between two deals involving the same two prospects but with different probabilities, you must prefer the deal having the higher probability of receiving the more preferred prospect.

According to the handbook, single objective decision analysis is easier to use for _________. Multiple objective decision analysis is easier to use for _________

Private corporations, government agencies

All of the following are benefits of VFT except:

Requires very little interactions between analysts and stakeholders

True or False: There is no meaningful connection between decision analysis and data analytics since they are competiting fields of application.

False

All of the following are true except:

VFT starts with a good set of alternatives and then determines the best way to evaluate them.

All of the following statements are true about decision analysis except:

Behavior decision analysis does not require that the decision maker be a rational decision maker

What are the four foundations of decision analysis?

Probability, mathematical decision theory, behavioral decision theory, soft skills

True of False:

The most common applications used in decision analysis practice are single objective using NPV and multi-objective using an additive value function

True or False: Value focused thinking concerns only the monetary cost of a decision

False

True of False: Affinity diagramming is a technique that is best used to present results of a decision analysis to high-level decision makers.

False

True or False: The four categories used to group issues are decisions, uncertainties, values, and other.

True

True of False: Once a decision frame is set, it should not be changed.

False

Why is an influence diagram is an effective tool for decision framing?

It shows the relationships between uncertainties, decisions, and values;

It identifies the variables and decisions that will be used in the decision;

It shows decision makers and stakeholders the big picture

Decision problems tend to find you, while you tend to find decision opportunities.

True

What questions are addressed by the vision statement?

How will we know if we have succeeded in making the best decision?

Why are we doing this?

What are we going to do?

Done deals

High level decisions that are taken as given

Decisions within scope

Focus of the current decision process

Delayed decisions

Decisions that can delegated or be postponed to a later date

An effective tool to obtain agreement on the purpose of the decision analysis is a/n _________.

Vision statement

True of False: The absence of an arrow between two uncertainties in an ID implies probabilistic dependence.

False

True or False: n the New Product Launch case study, two-way sensitivity analysis can only be performed on the Unit Price and Launch Year decision variables and not on any of the uncertain probabilistic parameters such as market size or product features.

False

True or False: The decisions and all of the parameters are typed on the calculations worksheet.

False

Match with the location in the spreadsheet model: Performs the calculations on every combination of parameters in the NPV data table

Calculation worksheet

Match with the location in the spreadsheet model:
Defines the number of NPV calculations to be performed

NPV data table

Match with the location in the spreadsheet model:
Provides the range of data on every uncertain variable

Control panel

Match with the location in the spreadsheet model: Selects the choice of the decision scenario (e.g., worst, base, best)

Index function cell

What are the advantages of spreadsheet modeling?

Instant feedback on calculations

Graphical representations of outputs

Computational power

Third-party add-in software

True or False: An influence diagram contains all of the information needed to build a model to include sequencing of events

False

True or False: Net Present Value (NPV) uses the concept of time value of money and serves as a metric to assess the profitability of a financial investment

True

Identify the decision processes recommended by the authors:

Decision conferencing and dialogue decision process.

Identify the decision process that is described by the situation: The CEO of a large corporation must make a decision regarding the R&D plan for the year. A decision analyst in the company learns of the problem and builds a stochastic optimization model based on his own knowledge and what he learns on-line. The analyst does not seek any input from stakeholders/subject matter experts or guidance from the CEO, but relies heavily on available data. His mathematical approach is sound and is well documented. He personally has no specific bias or preference for which alternative is evaluated as best. After three months of quantitative analysis, he plans to brief his results to the CEO.

Strictly analytical

Identify the decision process that is described by the situation:
The Dean assembles a team of stakeholders that include the Department Chairs, the Dean’s Staff, and some professors to establish College of Engineering research priorities. The team meets for a two-day working session in a conference room, and works to resolve disagreements while being facilitated by a decision analyst. A small value model is developed to evaluate the alternatives and is presented along with an audit trail of rationale. The team arrived at a consensus recommendation through the open exchange of information.

Decision conference

Identify the decision process that is described by the situation: A financial analyst in the University of Arkansas athletic ticket sales office developed and recommended one corporate ticket sale strategy for football games as the most profitable course of action. He knew that there were other reasonable options to consider. In his presentation to the Athletic Director, he champions his recommendation and downplays other options because he is a strong proponent and is confident that this is the best solution.

Advocacy

Identify the decision process that is described by the situation: A team of engineers implements a decision analysis process on behalf of the Director of Product Development to develop and evaluate alternatives to make product life cycle decisions. The Director holds multiple in-progress reviews (IPRs) with the team to receive progress reports and provide guidance each step of the way before the final decision is made. There was meaningful dialogue and back-and-forth discussions between the analysis team and the decision maker.

Dialogue decision

True or False: Decision analysts believe that logical reasoning means that decision analysis methods should be based on sound mathematics (based on the five rules/axiom of decision analysis and probability theory). 

True

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