COMMERCE 3QA3 Lecture Notes - Lecture 22: Emv, Decision Analysis, Decision-Making
9 Mar 2018
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Decision making under risk two stages (probabilities are known >= 2 decisions) Decision tree with expected monetary value (emv), eol, or expected utility (eu) The manager can list the possible future outcomes and can estimate the probability that a specific outcome with occur. Two or more decisions are usually made (2 stages) at different times. Can be used for a one stage problem (one decision at one point of time) and therefore we use a payoff table. Any decision analysis problem can be presented graphically as a decision tree. Present the decision alternatives and future outcomes in a sequential manner (time manner) Using decision nodes with arcs, outcome nodes with arcs, and end notes with payoffs. Decision node (square): the lines (arcs) originating from the decision represent decision alternatives available to the decision maker at that point in time. Of these, the decision maker must select only one alternative.
