Q.1 Decision theory primarily deals with?
Predicting market shares
Making choices under uncertainty
Calculating compound interest
Solving linear equations
Explanation - Decision theory provides tools for making rational choices when outcomes are uncertain.
Correct answer is: Making choices under uncertainty
Q.2 Which of the following is NOT a type of decision environment?
Certainty
Uncertainty
Risk
Inflation
Explanation - Decision environments are certainty, risk, and uncertainty. Inflation is an economic factor, not a decision environment.
Correct answer is: Inflation
Q.3 In a decision tree, the squares usually represent?
Chance nodes
Decision nodes
End results
Probabilities
Explanation - In decision trees, squares represent decision nodes, while circles represent chance nodes.
Correct answer is: Decision nodes
Q.4 Which decision criterion maximizes the minimum payoff?
Maximax
Maximin
Minimax regret
Expected value
Explanation - Maximin focuses on the best of the worst outcomes, hence maximizing the minimum payoff.
Correct answer is: Maximin
Q.5 The expected value criterion in decision-making is most suitable when?
The decision maker is risk neutral
The decision maker is risk averse
The decision maker is risk seeking
There is certainty
Explanation - Expected value is best when the decision maker is indifferent to risk, i.e., risk neutral.
Correct answer is: The decision maker is risk neutral
Q.6 Which decision criterion is also known as the ‘optimistic’ criterion?
Maximax
Maximin
Minimax regret
Expected value
Explanation - Maximax looks for the maximum possible payoff, assuming the most favorable conditions.
Correct answer is: Maximax
Q.7 The minimax regret criterion is based on?
Maximizing maximum payoff
Minimizing maximum regret
Maximizing minimum payoff
Minimizing minimum loss
Explanation - This criterion reduces the regret by choosing an option that minimizes the worst possible regret.
Correct answer is: Minimizing maximum regret
Q.8 Which of the following is a quantitative decision-making technique?
Brainstorming
Decision tree analysis
Focus groups
Delphi method
Explanation - Decision tree analysis is a structured, quantitative method of decision making.
Correct answer is: Decision tree analysis
Q.9 If probabilities of outcomes are not known, the environment is called?
Risk
Uncertainty
Certainty
Decision node
Explanation - Uncertainty exists when probabilities cannot be assigned to outcomes.
Correct answer is: Uncertainty
Q.10 Which decision criterion uses weighted average of outcomes?
Laplace
Expected value
Hurwicz
Maximin
Explanation - Expected value multiplies payoffs with probabilities to get a weighted average outcome.
Correct answer is: Expected value
Q.11 The Hurwicz criterion is a compromise between?
Maximin and Maximax
Expected value and Minimax
Risk and Uncertainty
Certainty and Regret
Explanation - Hurwicz uses a coefficient of optimism to balance between optimistic and pessimistic outcomes.
Correct answer is: Maximin and Maximax
Q.12 What does EMV stand for in decision theory?
Expected Minimum Value
Expected Maximum Value
Expected Monetary Value
Estimated Marginal Value
Explanation - EMV stands for Expected Monetary Value, a key criterion in decision theory.
Correct answer is: Expected Monetary Value
Q.13 A payoff table represents?
Only probabilities
Alternatives and outcomes
Only regrets
Utility functions
Explanation - Payoff tables show the payoffs associated with different alternatives and possible states.
Correct answer is: Alternatives and outcomes
Q.14 Which of these is NOT a decision criterion under uncertainty?
Laplace
Maximax
Maximin
Expected value
Explanation - Expected value requires probabilities, so it is a criterion under risk, not uncertainty.
Correct answer is: Expected value
Q.15 The Laplace criterion assumes?
All states of nature are equally likely
The best outcome will occur
The worst outcome will occur
Outcomes cannot be compared
Explanation - Laplace criterion assigns equal probabilities when none are known.
Correct answer is: All states of nature are equally likely
Q.16 A decision tree is particularly useful for?
Short-term forecasting
Multi-stage decision problems
Single-step problems
Simple arithmetic
Explanation - Decision trees help visualize and analyze sequential decision-making processes.
Correct answer is: Multi-stage decision problems
Q.17 When the decision maker avoids risk, they are said to be?
Risk neutral
Risk seeking
Risk averse
Uncertain
Explanation - A risk-averse decision maker prefers safer options over risky ones, even with lower payoffs.
Correct answer is: Risk averse
Q.18 Which type of utility function represents risk neutrality?
Concave
Convex
Linear
Exponential
Explanation - A linear utility function reflects indifference to risk, hence risk neutrality.
Correct answer is: Linear
Q.19 The regret in decision theory is defined as?
Difference between actual and maximum payoff
Difference between two probabilities
Difference between cost and revenue
Difference between expected and observed values
Explanation - Regret measures the opportunity lost by not choosing the best option.
Correct answer is: Difference between actual and maximum payoff
Q.20 Which of these is a probabilistic decision-making approach?
Maximax
Laplace
Expected value
Maximin
Explanation - Expected value uses probabilities of outcomes, making it probabilistic.
Correct answer is: Expected value
Q.21 In decision theory, alternatives refer to?
Possible events
Choices available to the decision maker
Random outcomes
Probabilities assigned
Explanation - Alternatives are the different courses of action a decision maker can take.
Correct answer is: Choices available to the decision maker
Q.22 What do circles represent in decision trees?
Payoffs
Decision nodes
Chance nodes
Regrets
Explanation - Circles are used to represent chance nodes, showing probabilistic outcomes.
Correct answer is: Chance nodes
Q.23 If a decision maker chooses the strategy with the highest minimum payoff, they are using?
Laplace
Maximin
Maximax
Expected value
Explanation - Maximin emphasizes safety by choosing the option with the least potential loss.
Correct answer is: Maximin
Q.24 The probability distribution of outcomes is required for which decision criterion?
Laplace
Expected value
Maximax
Maximin
Explanation - Expected value requires probabilities to compute weighted outcomes.
Correct answer is: Expected value
Q.25 The coefficient of optimism in Hurwicz criterion ranges between?
-1 to 1
0 to 1
1 to 10
0 to 100
Explanation - Hurwicz uses a parameter α between 0 and 1 to balance optimism and pessimism.
Correct answer is: 0 to 1