Chapter 14 Decision Making

Question 1

Decision Theory

Answer 1

Analytical and systematic way to tackle problems

Question 2

4 basic elements of decision making AEOP

Answer 2

Acts, Events, Outcomes, Payoffs

Question 3

good decision

Answer 3

based on logic, consider all available data and possible alternatives

Question 4

Alternative

Answer 4

course of action or strategy that decisions maker can choose

Question 5

Criteria

Answer 5

factors important to decision maker

Question 6

State of Nature

Answer 6

event or scenario not under control of decision makers etc economy, weather, inflation

Question 7

Payoff Table

Answer 7

numerical outcome obtained due to application of each possible combination of decision alternatives and state of nature

Question 8

Payoff tables are conditional values because of….

Answer 8

unknown state of nature

Question 9

payoff values are measured within…..

Answer 9

within a specific period called decision horizon

Question 10

Payoff Matrix

Answer 10

summarizes final outcome or payoff for each decision alternative under possible state of nature

Question 11

Opportunity Loss or Regret Table

Answer 11

Difference between the payoff from best decision and all other decision payoffs. Best state of nature - other state

Question 12

3 types of decision making

Answer 12

Certainty, Uncertainty and Risk

Question 13

Certainty

Answer 13

you know what will happen with 100% probability

Question 14

Uncertainty

Answer 14

you know but cannot assign specific probability to event

Question 15

Risk

Answer 15

probability event will occur, uncertain is known, probability is measure of information

Question 16

What to do with double operators 2 step:

Answer 16

apply left operator then right operator

Question 17

Optimistic

Answer 17

Maximax

Question 18

Pessimistic

Answer 18

Maximin

Question 19

Realism

Answer 19

hurwiez (alpha) to best and (1-alpha) to worst

Question 20

Equally likely

Answer 20

average outcome

Question 21

Minimax regret requires and calculated by

Answer 21

use of opportunity loss table and calculated by lowest payoff - each pay off