OIDD 101 Lecture Notes - Lecture 6: Minimax, Risk Neutral, Prior Probability
26 Mar 2015
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Opim 101 - operations & information management - lecture 6: structured decision. Each event node must have an outbound arrow for all possible outcome of that event. Each possible outcome for that event must have a probability associated with it. The sum of the probabilities must equal 1. 00: For each action evaluate the minimum payoff that could occur. Choose the action that yields the maximum minimum payoff. Note: this does not rely on probabilities and is a conservative approach. For each action evaluate the maximum payoff that could occur. Choose the action that yields the maximum maximum payoff. Note: this does not rely on probabilities and is an aggressive approach. Start at the right of decision tree and successively evaluate the expected value at each node as you move left. Choose the action with the highest expected value. Note: relies on probabilities and is a risk neutral approach.
