Maximizing Expected Utility and Decision Trees

1. What are some of the reasons for poor decisions?

2. Explain or define each of these terms:

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a. Laplace criterion.

b. Minimax regret.

c. Expected value.

d. Expected value of perfect information

 

3. What information does a decision maker need in order to perform an expected-value analysis of

a problem? What options are available to the decision maker if the probabilities of the states of

nature are unknown? Can you think of a way you might use sensitivity analysis in such a case?