Week 7 Lecture 1 Decision Analysis Flashcards
What are decision makers liable to do?
- 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
In summary, what is the aim of decision/systematic analysis?
Help decision makers to make better decisions
What is the generic approach towards systematic analysis?
- Identify the alternative decisions (Play or not play)
- Identify the uncertainty’s and the probability of each uncertainty.
- Calculate the payoff of each possible outcome.
- Decide on an approach decision criterium.
What are the 4 decision criterium?
- Estimated value
- Maximin
- Maximax
- Maximin Regret
The ‘Expected value’ method is the only method to consider what?
The probability of each event occurring
How is the ‘expected value’ calculated?
(Pi x Vi) + (Pi x Vi)
Of each possible decision
How is a decision reached under the ‘expected value’ method?
We select the Expected value that results in us being better off
What view does the Maximin method take?
The pessimistic view
What does the ‘’’Maximin method’ consider?
The worst case scenario, what is the best worst case scenario that could be reached?
What does the Maximin method avoid?
Choosing the worst outcome if things go badly
The Maximin is best used by people who are…
Risk adverse
What view does the ‘Maximax method’ take?
The most optimistic view
What does the ‘Maximax method’ consider when choosing a decision?
If everything goes well, what is the best case scenario
What does the ‘Maximax method’ achieve if all things go well?
The most profit
Maximin leaves us with the best decision…
In the event the worst happens
Maximax leaves us with the best decision should…
The best happen
What does ‘Maximax regret’ consider?
How much will we regret not taking the other decision
In relation to ‘Maximax regret’, how is regret calculated?
Regret = Maximum Event Value - Actual Value
What is the first thing to calculate when considering using the ‘Maximax Regret’ method?
What is the maximum event value under each condition
Under ‘Maximax regret’ the decision with the…….. is chosen
Lowest regret
What are the 4 steps to calculating the ‘Maximum regret’?
- Calculate the max event value (What is the best value under each scenario?)
- Calculate the Regret (What is the difference between the Maximum event value and the actual value)
- Max regret (What is the maximum regret under each decision?)
- Minimal Regret (What is the minimum regret available for each decision?)
The expected value method should be used when the decision frequency is…
Regularly repeated
Maximin and Maximax methods should be used when the decision is made…
Occasionally
What two things do the choice of criterion depend on?
- The decision that is being made.
2. The decision makers attitude to risk
When finding the Minimax regret, the correct choice is the ….. max regret
Lowest
