Week 11: Qualitative Decisions, AHP & Productivity Flashcards
What is the Allais’ Paradox?
It is the ‘rational’ approach to identifying the optimum decision is to take account:
- the probability of each possible outcome
- the consequence of each possible outcome
This involves calculating the expected utility of each action and choosing the action with the maximum expected utility. Idea is simple but not very simple for everyday decision making.
Describe the error in odds.
Using past experiences to estimate odds. Things that come to mind quickly seem more probable when it may not be.
Describe the error in values.
hint:emotional level
Values are harder to estimate than odds. About 90 - 95% of our decisions, even important ones, are made on the emotional, instinctual level.
Why do we make bad decisions?
Our brains evolved for a very different world. We must learn how to unlearn our natural instincts. We can have many performance measures, some performance measures are more important than others.
What is brute force with weighted expert opinion simple Multi-Criteria Analysis (MCA)?
Total = sum of (Expert W_n * Factor_n)
Total rank score = User W_1 brand + User W_2 colour , etc
Factorn_n = F (performance measure, …, n)
What are the disadvantages of MCA?
- weighting factors are often difficult to agree on by many parties
- may have inconsistencies within weighting factors
What are the advantages of MCA?
- Fast and dirty approach
- Can be combined with others to become very powerful such as fuzzy logic
What is Risk Based approach?
Risk = probability * consequence
Risk is often used to balance the funding gap – understanding gap leads to better decision-making.
What is the advantage of a Risk Based approach?
It can be powerful when combined with Monte Carlo analysis.
What are the advantages of AHP?
- based on mathematical decision theory and is an industry-standard
- generates ratio data
What are the disadvantages of AHP?
- labour intensive
- participants perceive the tool as a ‘black box’ if they don’t understand the math theory
What is Analytical Hierarchy Process (AHP)?
An in-depth pairwise comparison method by Thomas Saaty.
What are the steps of AHP?
1) Define objective and decision options
2) Structure elements in criteria, sub-criteria and alternatives
3) Make pairwise comparisons of elements in each group
4) Calculate weighting and consistency
- Find vector {W} normalised matrix
- Find {Ws} = [C] x {W}
- Calculate consistency check {consis} = {Ws}*{1/W}
- Find Lambda = avg({consis})
- Find consistency index, CI = (lambda - n)/(/n-1)
- Find CR = CI/RI
5) Evaluate alternatives according to weighting
6) Evaluate Benefit Cost Analysis (BCA)
7) Make decision
What is the Delphi Method?
A structured communication technique that seeks to minimise variance.
What is the principle of the Delphi Method?
Decisions formed from a structured group are more accurate than unstructured.
What is the assumption in the Delphi Method?
Group judgements are more valid than individual judgements.
What are the steps of the Delphi method?
1) Experts answer questions in 2/more rounds
2) Provide an anonymous summary of decisions and reasoning
3) Revise earlier answers in light of replies from other members
4) Process stopped after predefined stop criterion like number of rounds, stability of results or achievement of consensus
