Week 7 Lecture 1 Decision Analysis

Question 1

What are decision makers liable to do?

Answer 1

• Be influenced by presentation.
• Trade off decisions inconsistently.
• Use poor rules to decide what to do in uncertain environments.
• Communicate with other decision maker poorly.
• Assimilate new evidence poorly

Question 2

In summary, what is the aim of decision/systematic analysis?

Answer 2

Help decision makers to make better decisions

Question 3

What is the generic approach towards systematic analysis?

Answer 3

1. Identify the alternative decisions (Play or not play)
2. Identify the uncertainty’s and the probability of each uncertainty.
3. Calculate the payoff of each possible outcome.
4. Decide on an approach decision criterium.

Question 4

What are the 4 decision criterium?

Answer 4

• Estimated value
• Maximin
• Maximax
• Maximin Regret

Question 5

The ‘Expected value’ method is the only method to consider what?

Answer 5

The probability of each event occurring

Question 6

How is the ‘expected value’ calculated?

Answer 6

(Pi x Vi) + (Pi x Vi)

Of each possible decision

Question 7

How is a decision reached under the ‘expected value’ method?

Answer 7

We select the Expected value that results in us being better off

Question 8

What view does the Maximin method take?

Answer 8

The pessimistic view

Question 9

What does the ‘’’Maximin method’ consider?

Answer 9

The worst case scenario, what is the best worst case scenario that could be reached?

Question 10

What does the Maximin method avoid?

Answer 10

Choosing the worst outcome if things go badly

Question 11

The Maximin is best used by people who are…

Answer 11

Risk adverse

Question 12

What view does the ‘Maximax method’ take?

Answer 12

The most optimistic view

Question 13

What does the ‘Maximax method’ consider when choosing a decision?

Answer 13

If everything goes well, what is the best case scenario

Question 14

What does the ‘Maximax method’ achieve if all things go well?

Answer 14

The most profit

Question 15

Maximin leaves us with the best decision…

Answer 15

In the event the worst happens

Question 16

Maximax leaves us with the best decision should…

Answer 16

The best happen

Question 17

What does ‘Maximax regret’ consider?

Answer 17

How much will we regret not taking the other decision

Question 18

In relation to ‘Maximax regret’, how is regret calculated?

Answer 18

Regret = Maximum Event Value - Actual Value

Question 19

What is the first thing to calculate when considering using the ‘Maximax Regret’ method?

Answer 19

What is the maximum event value under each condition

Question 20

Under ‘Maximax regret’ the decision with the…….. is chosen

Answer 20

Lowest regret

Question 21

What are the 4 steps to calculating the ‘Maximum regret’?

Answer 21

1. Calculate the max event value (What is the best value under each scenario?)
2. Calculate the Regret (What is the difference between the Maximum event value and the actual value)
3. Max regret (What is the maximum regret under each decision?)
4. Minimal Regret (What is the minimum regret available for each decision?)

Question 22

The expected value method should be used when the decision frequency is…

Answer 22

Regularly repeated

Question 23

Maximin and Maximax methods should be used when the decision is made…

Answer 23

Occasionally

Question 24

What two things do the choice of criterion depend on?

Answer 24

1. The decision that is being made.

2. The decision makers attitude to risk

Question 25

When finding the Minimax regret, the correct choice is the ….. max regret

Answer 25

Lowest