MGT 2070 Lecture Notes - Design Matrix, Expected Value Of Perfect Information, Product Design
Document Summary
Decision analysis: scientific method that we can apply to business decisions. Decision-makers make rational decisions under limits imposed by: costs, human abilities, time, technology, availability of information. Sub-optimization: occurs in the departmentalization of decision making where each department. Instead we achieve a satisfactory solution, called satisficing attempts to reach a solution that is optimal for each. Decision maker"s process: determine goal/objective, establish decision criteria. Cost less than x, profit greater than y: select decision-making tool/model, list possible alternatives. Identify possible states of nature for each random variable: determine payoff for each alternative and state of nature, estimate likelihood of occurrence for each possible state of nature, evaluate alternatives according to criterion, select best alternative. Ways to display a decision problem: decision table. When we make decisions under uncertainty, we use: maximin (pessimist, extreme) Best of the worst payoffs: maximax (risk-taker, extreme) Best possible payoff: laplace (best chance, average) Best average payoff of all alternatives: minimax regret (minimizing regret, extreme)
