Chapter 3: Business Decision Theory Flashcards
What are Decision Problems
they exist only if from a selection of alternative actions under certain environmental states, the specific alternative that best contributes to reaching defined goals must be chosen
What is Dominance Principle
It helps simplify decision scenario
What is an Ideal Alternative
If it shows best results in all objectives
What is an Efficient Alternative
It it is not dominated by any other alternatives
What are the basic elements of decision model
Decision rule
Decision field
What are the 3 different types of Decisions
Decision under Certainty
Decision under Uncertainty
Decision under Risk
Define Decision under Certainty
It is when all the alternatives including their consequences are known
What is a One-Dimensional Decision Problem
Single Objective
Unbounded Objectives: Maximise/Minimise Value
Bounded Objectives: Achieve specific goal or range
What is a Multi-Criteria Decision Problem
Multiple Objectives
What are the Different Solution Methods of the Multi-Criteria Decision Problem
1) Try it out: use variety of different numerical combinations in trial and error
2) Graphic solution: mark prohibited areas, plot restrictions and target functions
3) Mathematical solutions: simplex algorithm
Define Decision under Uncertainty
It is the occurrence of future environmental states that cannot be predicted with any certainty
What are the 5 different rules of Decision Under Uncertainty
1) Maximin Rule
2) Maximax rule
3) Hurwicz rule
4) Savage-Niehans rule
5) Laplace Rule
Define Decision under Risk
The objective Probabilities of occurrence are know (lottery)
What are the different types of probability
Subjective Probability
Objective Probability
