True / False
- Subjective probability implies that we can measure the relative frequency of the values of the random variable.
- The use of "expert opinion" is one way to approximate subjective probability values.
- Given two statistically dependent events (A,B), the conditional probability of
P(A|B) =
P(B)/P(AB).
- Given three statistically independent events (A,B,C), the joint probability of
P(ABC) =
P(A) ×
P(B) ×
P(C).
- Expected monetary value (EMV) is the average or expected monetary outcome of a decision if it can be repeated a large number of times.
- Expected monetary value (EMV) is the payoff you should expect to occur when you choose a particular alternative.
- The difference in decision making under risk and decision making under uncertainty is that under risk, we think we know the probabilities of the states of nature, while under uncertainty we do not know the probabilities of the states of nature.
- EVPI (expected value of perfect information) is a measure of the maximum EMV as a result of additional information.
- One purpose of regression is to understand the relationship between variables.
- One purpose of regression is to predict the value of one variable based on the other variable.
- In a scatter diagram, the dependent variable is typically plotted on the horizontal axis.
- In regression, there is random error that can be predicted.
- Regression is always a superior forecasting method to exponential smoothing, so regression should be used whenever the appropriate software is available.
- Time-series models attempt to predict the future by using historical data.
- An exponential forecasting method is a time-series forecasting method.
- Qualitative models produce forecasts that are little better than simple guesses or coin tosses.
- A discrete random variable has a mean of 400 and a variance of 64. What is the standard deviation?
- Historical data indicates that only 20% of cable customers are willing to switch companies. If a binomial process is assumed, then in a sample of 20 cable customers, what is the probability that exactly 2 customers would be willing to switch their cable?
- The number of cell phone minutes used by high school seniors follows a normal distribution with a mean of 500 and a standard deviation of 50. What is the probability that a student uses fewer than 600 minutes?
- A market research survey is available for $10,000. Using a decision tree analysis, it is found that the expected monetary value with no survey is $62,000. If the expected value of sample information is -$7,000, what is the expected monetary value with the survey?
- A manager is deciding whether or not to build a small facility. Demand is uncertain and can be either at a high or low level. If the manager chooses a small facility and demand is low, the payoff is $300. If the manager chooses a small facility and demand is high, the payoff is $100. On the other hand, if the manager chooses a large facility and demand is low, the payoff is -$200, but if demand is high, the payoff is $800.
(a) What would be the best decision based on the maximax criterion?
(b) What would be the best decision based on the maximin criterion?
(c) What would be the best decision based on the minimax regret?
- An air conditioning and heating repair firm conducted a study to determine if the average outside temperature could be used to predict the cost of an electric bill for homes during the winter months in Houston, Texas. The resulting regression equation was:
Y= 227.19 - 1.45
X, where
Y= monthly cost,
X= average outside air temperature
(a) If the temperature averaged 48 degrees during December, what is the forecasted cost of December's electric bill?
(b) If the temperature averaged 38 degrees during January, what is the forecasted cost of January's electric bill?
- A large school district is reevaluating its teachers' salaries. They have decided to use regression analysis to predict mean teachers' salaries at each elementary school. The researcher uses years of experience to predict salary. The resulting equation was:
Y= 23,313.22 + 1,210.89
X, where
Y= salary and
X= years of experience
(a) If a teacher has 10 years of experience, what is the forecasted salary?
(b) If a teacher has 5 years of experience, what is the forecasted salary?
(c) Based on this equation, for every additional year of service, a teacher could expect his or her salary to increase by how much?
- What are the eight steps to forecasting?