01_Decision Making under Uncertainty

Question 1

3 Levels of Uncertainty

Answer 1

1. Decision under Certainty
- future is known and described by single scenario
- deterministic
2. Decision under Uncertainty
- multiple different scenarios for future
- probabilities are unknown
3. Decision under Risk
- multiple different scenarios for future
- probabilities are known

Question 2

Number of goals

2 items

Answer 2

• Single Goal: single criterion decision
• Multiple Goals: multi-criteria decision

Question 3

Number of Decision Makers

2 Alternatives

Answer 3

• single decision maker (DM)
• group decision maker

Question 4

Time distinction

2 items

Answer 4

• Static decision
• Dynamic decision

Question 5

Behaviour of Ppponent

2 Alternatives

Answer 5

1. Game against Nature
   - randomly acting opponent
2. Game Theory (Game against active antagonist)
   - strategically acting opponent

Question 6

5 Decision Rules

Answer 6

• Maximax-Rule
• Maximin-Rule
• Minimax-Regret-Rule
• Hurwicz-Rule
• Lapalce-Rule

Question 7

1. Dominance Criterion
2. Efficient alternative

Answer 7

Dominance Criterion
- an action a(i) dominates another action a(j), if it generates an equal or better outcome in every scenario s(n)

Efficient alternative
- an action a(i) is efficient, if it is not dominated by another alternative

Question 8

Exam Question

Determine the efficient actions. Motivate your answers.

practice wording

Answer 8

• a(1) outperforms a(3) in scenario s(1); in every other scenario a(1) does not perform worse than a(3)
• therefore a(1) dominates a(3)
• neither a(1) nor a(2) dominate the other one respectively
• all alternatives are efficient if
  x ∈ {11,12}

Question 9

3 Decision Situations

depending on Level of Uncertainty

Answer 9

1. Deterministic
2. Uncertainty (without probabilities)
3. Risk (with probabilities)

Question 10

5 Characterizations of Decision Situations

Answer 10

1. Level of Uncertainty
2. Number of Goals
3. Number of Decision Makers
4. Development over Time
5. Type of Antagonist

Question 11

Describe the Hurwicz-Rule und the Risk Attitude reflected by this rule

Answer 11

• Alternative which maximizes the linear combination of the maximum and minimum profit.
• for λ = 1 the rule equals the Maximax-Rule (risk seeking decision maker)
• for λ = 0 the rule equals the Maximin-Rule (risk averse decision maker)