Decision Analysis Flashcards
Problem: Clarify Objectives
Which method?
Value trees
AHP hierarchies
Problem: Compare alternatives over several objectives
Which method?
SMART
SMARTER
Multi-attribute utility theory
AHP
Problem: Structure options and outcomes
Which method?
Decision trees
Influence diagrams
Problem: Assess and manage uncertainty
Which method?
Risk analysis Probability wheels Event trees Fault trees Log-odds scales Uncertainty management
Problem: Compare option under uncertainty
Which methods?
Expected values Maximin criterion Utility Decision trees Influence diagrams Stochastic dominance Mean-standard deviation approach AHP
Problem: Group decision making
Which method?
Delphi
Decision Conferencing
Mathematical aggregation
Problem: Negotiation
Which method?
Negotiation models
What are the different heuristics?
Recognition heuristic Minimalist strategy Take-the-last strategy Lexicographic strategy Semi-lexicographic strategy Elimination-by-aspects strategy Sequential strategy – Satisficing Reason-based choice
Which of the heuristics are used for simultaneous problems?
Recognition heuristic Minimalist strategy Take-the-last strategy Lexicographic strategy Semi-lexicographic strategy Elimination-by-aspects
Which of the heuristics are used for sequential problems?
Satisficing
What influences which strategy is chosen?
Time Effort Knowledge Importance of accuracy Minimize conflict
What is bounded rationality
The human mind limited and not capable of always finding the optimal solution. Therefore, we often use approximations and heuristics (decision strategies and rules of thumb) to make satisfactory, not optimal, solutions.
What is compensatory strategies?
The decision maker does allow an option’s poor performance on one attribute to be compensated by a good performance on other attributes.
What is non-compensatory strategies?
The decision maker does not allow an option’s poor performance on one attribute to be compensated by a good performance on other attributes
Give an example of non-compensatory decision.
This could also be if decision maker is vegan and thereby only looking for vegan options – the price, taste, brand (other attributes) of non-vegan options is irrelevant as it cannot compensate for the fact that the product is not vegan.
What is the main difference between compensatory and non-compensatory?
Compensatory allow the DM to evaluate trade-offs (e.g. am I willing to accept lower quality if price is lower), where non-compensatory looks at attributes in isolation (e.g. I am not willing to accept low quality no matter the price).
Non-compensatory (most heuristics) are thereby more simple and less complex.
Explain recognition heuristics
: A heuristic applied when there are two options to choose among. If A is known and B in unknown, then A is chosen simply because it is recognized and requires less effort than to research option B and evaluate.
Minimalist strategy
A strategy that builds upon recognition heuristic in cases where either none or both options are recognized. If none are, then the decision maker simply guesses on the best option. If both are, a single attribute is chosen at random to be the decisive attribute. If A is better than B on this single attribute, then A is chosen.
Take-the-last strategy:
A version of minimalist (and thereby recognition heuristic) where instead of choosing the decisive attribute at random the decision maker identifies that attribute that helped make the decision last time the same choice was made.
Lexicographic strategy
This strategy requires the decision maker to rank the attributes in order of most to least important. The decision maker then evaluates the options based on the most important attribute and chooses the best-performing option.
Semi-lexicographic strategy
The same as lexicographic but with a tolerance limit. This could be that two options are said to be tied on the attribute price if they are within 50 cents.
Elimination by aspects (EBA)
This heuristic is based upon narrowing down the field of options by eliminating options that do not meet certain criteria. The decision is made as an iterative process where the decision maker identifies the most important attribute first and then defines an acceptable range (e.g. price is most important – eliminate all options that cost more than 100$ and less than 50$). This then narrows down the number of options. The process is then repeated for the second-most important attribute and so on.
Decoy effects
A decoy effect is the result of asymmetric dominance between options. If you compare a sport-car A, and a station-car B, at the same price level with free insurance, then it might be difficult to choose. If you then see the station-car B at another car dealer at the same price but without the free insurance, your tendency to choose the station-car B over sports-car A is greater
satisficing
When making choices where all options are not available at the same time, we must make sequential choices (e.g. looking for a job or a house, where options come and go). Satisficing is then choosing the first option that meets your requirement (e.g. if you look for a 3-bedroom house in Aarhus for 2mil, you will take the first house fitting this description). These requirements are referred to as aspiration level.
Reason-based choice
A different way of explaining how people make decisions. When decision markers are choosing, they are aware that they need to construct reasons for their choices in order to resolve conflict and justify their decisions. Therefore, they deviate from rational decision making as they seek the choice that is easiest to reason / justify.
Implications of reason based choice
Decision makers become sensitive to framing
Decision makers change decision when alternatives are introduced
Explain the distinction between event and outcome
Outcome are everything that can occur given an event.
An event consists of different outcomes
E.g. at least one store closes (event). Outcomes are then:
- Store 1 can close
- Store 2 can close
- Both stores can close
