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Free IIA-CIA-Part3 Exam Braindumps (page: 20)

Page 19 of 390
PDF with 1555 Questions

Your company (Company Y) has decided to enter the European market with one of its products and is now considering three advertising strategies. This market currently belongs to Company X. Company X is aware that your company is entering the market and is itself considering steps to protect its market. An analyst for your company has identified three strategies Company X might develop and has shown the payoffs for each in the tables below.


The analyst has formulated this problem as a:

  1. Zero-sum game.
  2. Cooperative game.
  3. Prisoner's dilemma.
  4. Game against nature.

Answer(s): A

Explanation:

Game theory is a mathematical approach to decision making when confronted with an enemy or competitor. Games are classified according to the number of players and the algebraic sum of the payoffs. In a two-player game, if the payoff is given by the loser to the winner, the algebraic sum is zero, and the game is a zero-sum game; if it is possible for both players to profit, the game is a positive-sum game. In this situation, the sum of the payoffs for each combination of strategies is zero. For example, if X takes no action and Y chooses limited advertising, X's payoff is -1 and Ys is 1.



If the bank uses the maximax criterion for selecting the location of the branch, it will select:

  1. L1.
  2. L2.
  3. L3.
  4. L5.

Answer(s): D

Explanation:

Risk-seeking, optimistic decision makers employ the maximax criterion. It is the strategy with the highest potential payoff, regardless of the state of nature. In this case, it is location L5 (US $29). "



A bank plans to open a branch in one of five locations (labeled L1, L2, L3, L4, L5). Demand for bank services may be high, medium, or low at each of thes e locations Profits for each location- demand combination are presented in the payoff matrix.


If the bank uses the minimax regret criterion for selecting the location of the branch. it will select:

  1. LI
  2. L2.
  3. L3.
  4. L5.

Answer(s): B

Explanation:

Under the minimax regret criterion, the decision maker selects the choice that minimizes the maximum regret (opportunity cost). The maximum regret for each location is determined from the opportunity loss matrix.



A bank plans to open a branch in one of five locations (labeled L1, L2, L3, L4, L5). Demand for bank services may be high, medium, or low at each of these locations. Profits for each location- demand combination are presented in the payoff matrix.



If, in addition to the estimated profits .management of the bank assesses the probabilities of high, medium, and low demands to be 0.3.0.4, and 0.3, respectively, what is the expected opportunity loss from selecting location L4?

  1. US$5.50
  2. US$7.90
  3. US$7.50
  4. US$5.00

Answer(s): A

Explanation:

First, the opportunity loss matrix must be prepared






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