Lecture 1 (End of Chapter Questions)

Question 1

Why is decision making difficult?

Answer 1

1. Common cognitive bias
2. Problem complexity
3. Multiple objectives
4. Risk

Question 2

What are the requirements for rational preferences?

Answer 2

1. Prospective orientations: Decisions should be forward looking (no sunk costs!)
2. Completeness: decision maker has a preference for any pair of alternatives
3. Transitivity: If a is better than b and b is better than c, then a is better than c
4. Independence of irrelevant alternatives: Given {a, b}, if a is better b, a is still prefered over b for the set {a, b, c}
5. Invariance: Preferences should not be affected when the same problem is presented in a different way (200 alive or 400 die)

Question 3

What are the basic components of a decision problem?

Answer 3

1. Objectives
2. Alternatives
3. Uncertain events
4. Outcomes

Question 4

What are the goals of decision analysis?

Answer 4

The goal is to make better, more rational decisions.

• Prescriptive decision theory aims to teach the method and concepts that support and improve rational decision making
• Descriptive decision theory aims to raise your consciousness about decision-making by pointing out the errors and biases in it

Question 5

Explain the experiment in and the findings of Bond, Carlson and Keeney (2008).

Answer 5

1. Step: DMs generate as many relevant objectives as they can (Objectives list)
2. Step: DMs see the master list and check all objectives that are relevant
3. Step: DMs map objectives from Step 1 to the master list. Checked items that map back are self-generated objectives; all others are recognised
4. Step: DMs rank or rate the importance of their checked objectives

Findings: Participants failed to generate a comprehensive list of objectives. On average the number of self generated objectives was 6 while the number of recognised objectives was 7.6

Question 6

What are the properties of an ideal set of objectives?

Answer 6

1. Completeness (all objectives included)
2. Simplicity (small set of objectives)
3. No redundancies
4. Preference independence (preferences with respect to the attribute levels of a subset of objectives should be independent of the attribute levels of the remaining objectives)
5. Measureability

Question 7

How to construct fundamental-objectives hierarchies?

Answer 7

• Diagram of relationships between objectives, sub-objectives and attributes
• All objectives in a hierarchy should be fundamental
• Most general objective at the top
• Higher levels represent more general objectives
• Lower levels represent more specific statements
• Lowest levels represent attributes based in which the alternatives will be compared
• Attributes are used to characterise performance in relation to an objective

Question 8

What is the difference between fundamental and means objectives?

Answer 8

• Fundamental: relevant for their own sake without further justification (e.g. minimize traffic deaths)
• Means: relevant because they help to achieve a more fundamental objective (e.g. more traffic lights)

Question 9

What are the desirable properties of an attribute?Explain each with an example.

Answer 9

1. Direct: number of fatalities versus number of accidents -> what is the objective?
2. Operational: low cost of information collection
3. Comprehensive: cover the full range of possible consequences
4. Understandable: units should be understandable (e.g. liter per km and not gallon per km)
5. Unambigious: same interpretation for everyone (e.g. number of stars on google)

Question 10

What are the types of attributes (measures)?Explain each with an example.

Answer 10

1. Natural: is in general use with a common interpretation (e.g. costs in dollar, weight in kg)
2. Zero or One Measures: describe whether the alternatives have a specific attribute or not (e.g. diploma yes or no)
3. Constructed Measure: is developed for a particular decision problem (e.g. scala from 1 to 5 for ease of use)