BU283 Lecture Notes - Lecture 17: Growth Stock, Perfect Information, Expected Value Of Perfect Information
Document Summary
The field of decision analysis provides a framework for making important decisions. Decision analysis helps us make a decision from a set of possible decision alternatives when uncertainty regarding the future exists. The goal of decision analysis is to make the optimal decision: high monetary decisions. A decision problem is characterized by decision alternatives, states of nature, and resulting payoffs. The decision alternatives are the different possible strategies the decision maker can employ. The states of nature refer to future events, not under the control of the decision maker, which will ultimately affect decision results. Decision alternatives: controllable; our choice; denoted by di. Outcomes (states of nature: future events, uncontrollable, denoted by sj, define all (mutually exclusive, collectively exhaustive, we make choices, the consequences are beyond our control. Criteria to evaluate alternatives associated with outcomes (payoffs: payoffs can be expressed in terms of profit, cost, time, distance or any other appropriate measure.
