MANAGERIAL DECISION MAKING

Study Guide for Test 2

Chapter 11

The exam will have a number of questions about game theory.  You will need to know how to use game theory to make the appropriate decisions as to what strategies to adopt.  Specifically, you need to know:

1.  How to determine dominant and dominated strategies

2.  What the Prisoners' dilemma involves

3.  How to determine Nash equilibria for each player

4.  What happens in multiple equilibria situations, including the "Battle of the Sexes"

5.  How to use game trees to represent sequential competition

6.  What is involved with backward and forward induction

7.  How to determine if a threat is credible

8.  How limit pricing and maintaining excess capacity can be used to establish the credibility of a threat

9.  How contingent strategies such as a punitive strategy or tit-for-tat are used in repeated competition situations

10. How the need for establishing a reputation for quality or toughness comes into play in repeated competition situations

Chapter 13

You will need to know how decisions are made when uncertainty is involved.  Specifically, you need to know:

1.  How to use decision trees in the decision-making process

2.  How the expected-value criterion is used in the decision-making process

3.  How to deal with situations involving multiple risks

4.  How to deal with situations involving simultaneous actions

5.  How to deal with situations involving sequential decisions

6.  How attitudes towards risk might affect decisions

7.  What is meant by certainty equivalent and what that implies about attitudes towards risk

Chapter 14

You will need to know how information affects the decision-making process.  Specifically, you need to know:

1.  How to calculate the expected value of information (EVI) and how to use to decide whether or not to acquire information

2.  How to use Bayes' Theorem to deal with situations where there is imperfect information

3.  The problems that might arise when using intuitive prediction

4.  How to determine the optimal stopping point if there is an increasing probability of success

5.  How to determine the optimal stopping point if there is a decreasing probability of success

6.  How to determine the optimal order of sequential decisions

7.  How to determine the optimal number of alternatives to consider