D3) What is the misconception of the risk-reward relationship? What is the role and the ultimate goal of the decision maker? Examples, implications.
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- 36. Over the centuries several eminent thinkers have offered insights into the prob- lems of decision making in the face of risk. Which of the following lists places the the thinkers in correct chronological order, from earliest to latest? (a) Pierre Simon de Laplace, Daniel Bernoulli, John von Neumann, Christian Huygens, Amos Tversky (b) Daniel Bernoulli, Christian Huygens, Pierre Simon de Laplace, Amos Tversky, John von Neumann (c) Daniel Bernoulli, Pierre Simon de Laplace, Christian Huygens, Amos Tversky, John von Neumann (d) Christian Huygens, Daniel Bernoulli, Pierre Simon de Laplace, John von Neumann, Amos TverskyQuestion 1. Following payoff table (Table 1) shows profit for a decision analysis problem with two decision alternatives and three states of nature. Table 1: Decision Alternative Nature of States s1 s2 s3 d1 250 100 25 d2 100 100 75 Recommend a decision based on the use of the optimistic, conservative, and minimax regret approaches.(a) A risk aversion strategy (b) A risk-taking strategy (c) The framing effect
- 8) Draw a graph that shows the typical relationship between weighted probabilities (in prospect theory) and actual probabilities. How does this impact decision-making? 4According to the text explain briefly how Risk Analysis helps the decision maker?Question 1 of 2 Workshop Decision Making Under Conditions of Risk and Uncertainty Question 1 A theatre has a seating capacity of 500 people and is considering engaging MS and her orchestra for a concert for one night only. The fee that would be charged by MS would be $10,000. If the theatre engages MS, then this sum is payable regardless of the size of the theatre audience. Based on past experience of events of this type, the price of the theatre ticket would be $25 per person. The size of the audience for this event is uncertain, but based on past experience it is expected to be as follows 300 people 400 people 500 people Probabilit)y 50% 30% 20% In addition to the sale of the teatre tickets, it can be expected that members of the audience will also purchase confectionery both prior to the performance and during the interval. The contribution that this would yield to the theatre is unclear, but has been estimated as follows: Contribution from confectionery sales Contribution of $3…
- 1 . Individual Problems 17-2 You're a contestant on a TV game show. In the final round of the game, if contestants answer a question correctly, they will increase their current winnings of $3 million to $4 million. If they are wrong, their prize is decreased to $2,250,000. You believe you have a 25% chance of answering the question correctly. Ignoring your current winnings, your expected payoff from playing the final round of the game show is . Given that this is , you play the final round of the game. (Hint: Enter a negative sign if the expected payoff is negative.) The lowest probability of a correct guess that would make the guessing in the final round profitable (in expected value) is . (Hint: At what probability does playing the final round yield an expected value of zero?)Explain:1. Risk analysis allows assessment of future uncertain impacts, and incorporates uncertainty into the assessment. 2. Risk analysis provides a method for comparing low-probability, high consequence impacts with high-probability, low-consequence impacts.What type of bias relies too heavily on one piece of information in making a final decision? A. Availability Heuristic Bias B. Bandwagon Effect C. Anchoring Bias
- Please make sure the answer is correct 100% Why does cost of capital play an important role in decision-making?d. Use expected utility to make a recommended decision. e. Should the decision maker feel comfortable with the final decision recommended by the analysis?Which of the following are examples of common behavioral errors in decision making (multiple correct answers; check all that apply). A. Always paying more than true willingness to pay. B. Letting unrecoverable sunk costs influence ongoing decisions for when such costs have no bearing on benefits and costs going forward. C. Making different decisions when an identical problem is framed in two different ways, especially when one is framed in terms of gains and the other in terms of losses. D. Always saving too little. E. Generally spending too little on high-quality, high-priced items. F. Settling on a default alternative in the face of a difficult or complex decision G. Considering the average cost and average benefit, instead of the marginal cost and marginal benefit, When choosing whether a little more or less should be bought or produced.