BU275 Study Guide - Midterm Guide: Standard Deviation, Monte Carlo Method, Expected Value Of Perfect Information
Document Summary
Decision alternatives: different possible strategies decision maker can employ. States of nature: actual event that may occur in future mutually exclusive (only one can occur at a time) Payoff tables: organizes decision situation, including payoffs from diff. decisions given states of nature (expressed in terms of profits or costs) Maximax criterion: maximum of maximum payoffs optimistic. Maximin criterion: maximum of minimum payoffs pessimistic. Minimax regret criterion: minimizes maximum regret (diff. between payoff from best decision and all other decision payoffs) look at most desirable number in each column and find diff. between each state to most desirable nature. Hurwicz criterion: multiplies best payoff by , coefficient of optimism (measure of decision maker"s optimism), and worst payoff by 1 - . Laplace criterion/equal likelihood: multiplies the decision payoff for each state of nature by equal weight select max. decision. Expected value of perfect information (evpi): max. amount decision maker would pay for additional information.
