## Description

## Test Bank For Quantitative Methods for Business 12th Edition

**Chapter 5—Utility and Game Theory**

**MULTIPLE CHOICE**

1. When consequences are measured on a scale that reflects a decision-maker’s attitude toward profit, loss, and risk, payoffs are replaced by

a. |
utility values. |

b. |
multicriteria measures. |

c. |
sample information. |

d. |
opportunity loss. |

ANS:APTS:1TOP:Meaning of utility

2.The purchase of insurance and lottery tickets shows that people make decisions based on

a. |
expected value. |

b. |
sample information. |

c. |
utility. |

d. |
maximum likelihood. |

ANS: C PTS: 1 TOP: Introduction

3.The expected utility approach

a. |
does not require probabilities. |

b. |
leads to the same decision as the expected value approach. |

c. |
is most useful when excessively large or small payoffs are possible. |

d. |
requires a decision tree. |

ANS: C PTS: 1 TOP: Expected utility approach

4.Utility reflects the decision maker’s attitude toward

a. |
probability and profit |

b. |
profit, loss, and risk |

c. |
risk and regret |

d. |
probability and regret |

ANS:BPTS:1TOP:Meaning of utility

5.Values of utility

a. |
must be between 0 and 1. |

b. |
must be between 0 and 10. |

c. |
must be nonnegative. |

d. |
must increase as the payoff improves. |

ANS: D PTS: 1 TOP: Developing utilities for monetary payoffs

6.If the payoff from outcome A is twice the payoff from outcome B, then the ratio of these utilities will be

a. |
2 to 1. |

b. |
less than 2 to 1. |

c. |
more than 2 to 1. |

d. |
unknown without further information. |

ANS:DPTS:1TOP:Meaning of utility

7.The probability for which a decision maker cannot choose between a certain amount and a lottery based on that probability is

a. |
the indifference probability. |

b. |
the lottery probability. |

c. |
the uncertain probability. |

d. |
the utility probability. |

ANS: A PTS: 1 TOP: Developing utilities for monetary payoffs

8.A decision maker has chosen .4 as the probability for which he cannot choose between a certain loss of 10,000 and the lottery *p*(−25000) + (1 − *p*)(5000). If the utility of −25,000 is 0 and of 5000 is 1, then the utility of −10,000 is

a. |
.5 |

b. |
.6 |

c. |
.4 |

d. |
4 |

ANS: B PTS: 1 TOP: Developing utilities for monetary payoffs

9.When the decision maker prefers a guaranteed payoff value that is smaller than the expected value of the lottery, the decision maker is

a. |
a risk avoider. |

b. |
a risk taker. |

c. |
an optimist. |

d. |
an optimizer. |

ANS: A PTS: 1 TOP: Risk avoiders versus risk takers

10.A decision maker whose utility function graphs as a straight line is

a. |
conservative. |

b. |
risk neutral. |

c. |
a risk taker. |

d. |
a risk avoider. |

ANS: B PTS: 1 TOP: Risk avoiders versus risk takers

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