DecTh_Utility Th

DecTh_Utility Th - CHAPTER 3 Decision Analysis LEARNING...

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69 1. List the steps of the decision-making process. 2. Describe the types of decision-making environments. 3. Make decisions under uncertainty. 4. Use probability values to make decisions under risk. 5. Develop accurate and useful decision trees. 6. Revise probability estimates using Bayesian analysis. 7. Use computers to solve basic decision-making problems. 8. Understand the importance and use of utility theory in decision making. Summary Glossary Key Equations Solved Problems Self-Test Discussion Questions and Problems • Internet Homework Problems Case Study: Starting Right Corporation Case Study: Blake Electronics Internet Case Studies • Bibliography Appendix 3.1: Decision Models with QM for Windows Appendix 3.2: Decision Trees with QM for Windows After completing this chapter, students will be able to: 3 CHAPTER OUTLINE LEARNING OBJECTIVES Decision Analysis 3.1 Introduction 3.2 The Six Steps in Decision Making 3.3 Types of Decision-Making Environments 3.4 Decision Making Under Uncertainty 3.5 Decision Making Under Risk 3.6 Decision Trees 3.7 How Probability Values Are Estimated by Bayesian Analysis 3.8 Utility Theory CHAPTER
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70 CHAPTER 3 DECISION ANALYSIS 3.1 Introduction To a great extent, the successes or failures that a person experiences in life depend on the deci- sions that he or she makes. The person who managed the ill-fated space shuttle Challenger is no longer working for NASA. The person who designed the top-selling Mustang became president of Ford. Why and how did these people make their respective decisions? In general, what is in- volved in making good decisions? One decision may make the difference between a successful career and an unsuccessful one. Decision theory is an analytic and systematic approach to the study of decision making. In this chapter, we present the mathematical models useful in helping managers make the best possible decisions. What makes the difference between good and bad decisions? A good decision is one that is based on logic, considers all available data and possible alternatives, and applies the quantitative approach we are about to describe. Occasionally, a good decision results in an unexpected or un- favorable outcome. But if it is made properly, it is still a good decision. A bad decision is one that is not based on logic, does not use all available information, does not consider all alterna- tives, and does not employ appropriate quantitative techniques. If you make a bad decision but are lucky and a favorable outcome occurs, you have still made a bad decision. Although occa- sionally good decisions yield bad results, in the long run, using decision theory will result in successful outcomes. Decision theory is an analytic and systematic way to tackle problems.
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