RMI-2302 Chapter 3: Chapter 3 Notes
13 Feb 2017
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Document Summary
Provides a formal analytic framework for decision-making under conditions of uncertainty. Used to determine optimal strategies where a decision-maker is faced with several decision alternatives and an uncertain, or risky, pattern of future events. The decision-making process involves the following steps: Determination of the pay-off function which describes the consequences resulting from the different combinations of the acts and events. Choosing from among the various alternatives on the basis of. One-stage decision-making process some criterion: developing pay-off and regret tables. A pay-off table represents the matrix of the conditional values associated with all the possible combinations of the acts and the events: opportunity loss or regret table. Also, called regret, the opportunity loss is defined as the amount of pay- off forgone by not adopting the optimal course of action: decision rules. The minimum pay-offs resulting from adoption of various strategies are considered and among these values the maximum one is selected.
