Decision Making

Question 1

Decision Criteria

Answer 1

Maximum Benefit
Minimax Regret
Maximax benefit

Question 2

Maximax Benefit

Answer 2

Optimistic
Risk taking
The “highest” maximum benefit
Chose the maximum from the options, then chose the maximum of those

Question 3

Maximin Benefit

Answer 3

Pessimistic
Risk averse
The “highest” minimum benefit
Chose the minimum from the options, then chose the maximum of those

Question 4

Minimax Regret

Answer 4

The “lowest” maximum regret
Opportunity loss for each possible purchase
For each state choose the maximum from the options, then calculate the loss from choosing an alternative
Regret table

Question 5

Hurwicz Criterion

Answer 5

Degree of optimism 
Consider best and worst outcome under uncertainty
Optimistic to a degree of a 
Pessimistic to a degree of (1-a)
Realistic view

Question 6

Decision Making with probability

Answer 6

Multiply payoff by probability of option occurring

Question 7

Square in a decision tree

Answer 7

Decision Node

Question 8

Circle in a decision tree

Answer 8

Outcome Node

Question 9

Expected Monetary Value (EMV)

Answer 9

Lottery
Expected return
Payoff multiplied by probability

Question 10

Von Neumann-Morgenstern

Answer 10

the optimal decision will be the one that maximises the expected value of the utility (i.e., satisfaction)

1) Most favourable and least favourable
2) Determine the P for all over outcomes that makes them indifferent
3) Reduce compound lottery to simple lottery
4) Chance of receiving most favourable outcome