OMIS 2010 Lecture Notes - Lecture 13: Collectively Exhaustive Events, Weighted Arithmetic Mean, Emv

• School: WLU
• Department: Operations Management and Information System
• Course: OMIS 2010
• Professor: Linda Lakats

Document Summary

A good decision is one that: uses analytic decision making. Is based on logic and considers all available data and possible alternatives. Alternative a course of action or strategy that may be chosen by the decision maker: consider a finite set of possibilities. Outcome - result of a particular scenario; usually in $, npv. Payoff tables show the financial consequences or payoffs for each combination of alternatives that can be chosen and different states of nature that might occur. Methods for selecting the preferred set of alternatives: maximax, maximin, minimax regret, expected value. For each state of nature: determine what decision you would ideally have made (where regret = 0, compare every other alternative to this best decision under the circumstances. > regret = best payoff actual payoff (for each state of nature) Expected value (ev) / expected monetary value (emv) Assign a probability to each state of nature.