DSCI 304 Chapter Notes - Chapter 5s: Expected Value Of Perfect Information, Sensitivity Analysis, Risk-Seeking
18 Sep 2016
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Identify the problem: specify objectives and criteria for a solution, develop suitable alternatives, analyze and compare alternatives, select the best alternative. Implement the solution: monitor to see that the desired result is achieved. Occasionally turn out poorly due to unforeseeable circumstances usually poor decisions are the result of a combination of. Failure to recognize the importance of each step. Failure to complete a step before jumping to the next step. Environment in which relevant parameters have known values. Risk: environment in which certain future events have probabilistic outcomes. Uncertainty: environment in which it is impossible to assess the likelihood of various possible future events. Decision making under uncertainty: sometimes made under complete uncertainty: no information is available on how likely the various states of nature are. When making a decision with uncertainty consider the following criteria. Maximin: choose the alternative with the best of the worst possible payoffs. Maximax:choose the alternative with the best possible payoff.
