Week 2- Decision Analysis Flashcards
Motivations for decision analysis
Psychological comfort, communicating, advocacy, generating new solutions and making better decisions.
3 parts of decision making
choices, events and payoffs
tree
sequence of decisions or events
can change the probabilities
dominated alternative
some other choice that is better for all possible outcomes
can eliminate from the choice set, wont have to lose money analyzing
6 steps of decision making
Clearly define the problem at hand
List the possible alternatives
Identify the possible outcomes or state of nature
LIst the payoff of each combo of alternatives and outcomes
Select one of the mathematical decision theory models
Apply the model and make the decision
3 types of decision-making environments
under certainty, under uncertainty, under risks.
Under certainty
decision maker knows with certainty the consequences of each alternative or decision choice
Under uncertainty
decision maker does not know the probabilities of the various outcomes
Under Risks
decision maker knows the probabilities of the various outcomes
Maxi Min
Choose Mins of each column
Choose max of mins
Maxi Max
Choose Max of each column
Chose max of max
BIggest in the table
Mini Max regret
1) Create regret table
2) In columns, list regret of choosing each option. Give best option a 0 and difference is the regret of others.
3) List max’s of the rows and pick minimumof the max
Laplace
Add all columns up and select the highest
Mini Mini
Smallest Value in chart
Expected value of perfect information
max we would be willing to pay for the perfect information
EVPI= EVwPI -EMV= additional benefit
money when you have perfecr info- money when you dont have perfect info
