Convenient way to represent decisions-chance events

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Reference no: EM131930426

1) A convenient way to represent decisions, chance events, and possible outcomes in choices under risk and uncertainty is known as a:

A: Probability distribution

B: Decision table

C: decision tree

D: expected outcome tree

E: Risk table

2) An individual is said to risk averse if his/her certainty equivalent for a risky prospect is:

A: always negative

B: equal to its expected value

C: equal to the average probability of the outcomes

D: always zero

E: less than its expected value

A manager who chooses among options by applying the expected value criterion is:

A: risk neutral

B: risk averse

C: risk loving

D: willing to insure or hedge his bets

E: a risk minimizer

3) The expected value of test information is:

A: zero if the new information does not change the firm’s decisions.

B: the difference between the actual outcome with test information and without it

C: the sum of the expected value with the information and without it

D: the expected value of the decision taken using the test

E: the same as the expected value of the decision taken without the test

4) A firm supplies aircraft engines to the government and to private firms. It must decide between two mutually exclusive contracts. If it contracts with a private firm, its profit will be $2 million, $1 million, or -$1 million with probabilities .25, .4, and .35, respectively. If it contracts with the government, its profit will be $4 million or -$2.5 million with respective probabilities .4 and .6. Which contract offers the greater expected profit or loss?

A: The private contract offers the greater expected profit.

B: The government contract offers the greater expected profit

C: Both contracts offer the same expected profit

D: The private contract results in a greater expected loss

E: The government contract results in a greater expected loss.

Reference no: EM131930426

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