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Lecture8web - MBAC6080 Decision Modeling and Applications...

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1 MBAC6080 Thomas Vossen Assistant professor of Operations Management Leeds School of Business University of Colorado Boulder, CO 80309-0419 Decision Modeling and Applications
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Lecture 8, 3-5-2008 2 MBAC6080 Agenda Decision-Making under Uncertainty Introductory Concepts Value of Information Perfect/Sample Information Article Reviews
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Lecture 8, 3-5-2008 3 MBAC6080 Interpreting Uncertainty We frequently make statements about uncertainty: “It will rain tomorrow.” subjective probability “The 100 000 th decimal of π is 6.” a fact, the uncertainty lies in the available information “I win in a lottery with probability frequentist or classical 0,00005 . probability interpretation Uncertainty = An event with unknown outcome Probability = A number for measuring uncertainty.
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Lecture 8, 3-5-2008 4 MBAC6080 Assessing Uncertainty Prerequisite The events must be well defined. Results / Goal A probability number to any outcome of interest. One can use 1) Past evidence 2) Causal models 3) Expert judgement
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Lecture 8, 3-5-2008 5 MBAC6080 Incorporating Uncertainty General Issues: Elicitation of subjective probabilities Dealing with multiple sources of uncertainty Risk assessments Sensitivity Analysis
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Lecture 8, 3-5-2008 6 MBAC6080 Basic Concepts
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Lecture 8, 3-5-2008 7 MBAC6080 Example: QK Mines The Placer Dome gold mine in Detour Lake Ontario is running out of gold. The existing ore deposit is all but mined out. The existing property however is still believed to have substantial deposits and an aggressive exploration effort is under way The QK zone of mineralization was discovered recently from surface drilling and initial estimates of the ore body based on this information are suspect at best. Placer Dome has developed three possible strategies to mine the QK deposit. They could drop a new mine shaft, extend the current mine workings to the QK zone, or use a raise bore shaft for waste removal and extend workings for ore removal
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Lecture 8, 3-5-2008 8 MBAC6080 Example: QK Mines Step 1: Identify Decision Alternatives For QK, three alternative are considered D 1 = A new mine shaft D 2 = A raise bore shaft D 3 = Extend existing mine workings The key factor in deciding upon an alternative involves the estimates of the size of the ore body.
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Lecture 8, 3-5-2008 9 MBAC6080 Example: QK Mines Step 2: Identify possible States of Nature States of Nature S 1 = Large Ore Reserve (greater than 6 tons) S 2 = Marginal Ore Reserve (less than 6 tons)
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Lecture 8, 3-5-2008 10 MBAC6080 Example: QK Mines Step 3: Assess payoffs for each scenario States of Nature Alternatives Large (S 1 ) Marginal (S 2 ) New shaft (D 1 ) $25 Million -$10 Million Raise Bore (D 2 ) $15 Million $4 Million Extend (D 3 ) $10 Million $6 Million
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Lecture 8, 3-5-2008 11 MBAC6080 Example: QK Mines Large (S1) $25 Million New Shaft (D1) Marginal (S2) ($10 Million) Large (S1) $15 Million Raise Bore (D2) 1 0 Marginal (S2) $4 Million Large (S1) $10 Million Extend (D3) Marginal (S2) $6 Million Graphical Representation
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Lecture 8, 3-5-2008 12 MBAC6080 Example: QK Mines Expected Value Approach
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This note was uploaded on 05/31/2008 for the course MBAC 6080 taught by Professor Vossen during the Spring '08 term at Colorado.

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Lecture8web - MBAC6080 Decision Modeling and Applications...

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