ReviewQuestions12.1-1Thedecisionalternativesaretodrillforoilortoselltheland.12.1-2Theconsultinggeologistbelievesthatthereis1chancein4ofoilonthetractofland.12.1-3Maxdoesnotputmuchfaithintheassessment.12.1-4Adetailedseismicsurveyofthelandcouldbedonetoobtainmoreinformation.12.1-5Thepossiblestatesofnaturearethepossibleoutcomesoftherandomfactorsthataffectthepayoffthatwouldbeobtainedfromadecisionalternative.12.1-6Priorprobabilitiesaretheestimatedprobabilitiesofthestatesofnaturepriortoobtainingadditionalinformationthroughatestorsurvey.12.1-7Thepayoffsarequantitativemeasuresoftheoutcomesfromadecisionalternativeandastateofnature.Payoffsaregenerallyexpressedinmonetaryterms.12.2-1Themaximaxcriterionidentifiesthemaximumpayoffforeachdecisionalternativeandchoosesthedecisionalternativewiththemaximumofthesemaximumpayoffs.Themaximaxcriterionisfortheeternaloptimist.12.2-2Themaximaxciterioncompletelyignoresthepriorprobabilitiesandignoresallpayoffsexceptforthelargestone.12.2-3Themaximincriterionidentifiestheminimumpayoffforeachdecisionalternativeandchoosesthedecisionalternativewiththemaximumoftheseminimumpayoffs.Themaximincriterionisforthetotalpessimist.12.2-4Themaximincriterionignoresthepriorprobabilitiesandignoresallpayoffsexceptthemaximinpayoff.12.2-5Themaximumlikelihoodcriterionfocusesonthemostlikelystateofnature,theonewiththelargestpriorprobability.12.2-6Criticismsofthemaximumlikelihoodcriterioninclude:1)thiscriterionchoosesanalternativewithoutconsideringitspayoffsforstatesofnatureotherthanthemostlikelyone,2)foralternativesthatarenotchosen,thiscriterionignorestheirpayoffsforstatesofnatureotherthanthemostlikelyone,3)ifthedifferencesinthepayoffsforthemostlikelystateofnaturearemuchlessthanforanothersomewhatlikelystateofnature,thenitmightmakesensetofocusonthislatterstateofnatureinstead,and4)iftherearemanystatesofnatureandtheyarenearlyequallylikely,thentheprobabilitythatthemostlikelystateofnaturewillbethetrueoneisfairlylow.12.2-7Bayes’decisionrulesaystochoos