HW4_Soln

HW4_Soln - MS&E 252 Decision Analysis I Handout #12...

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MS&E 252 Handout #12 Decision Analysis I 10/31/2007 Page 1 of 20 HW#4 Solutions Homework Assignment #4 - Solutions Students Distribution: 0 10 20 30 40 50 60 -INF-0 0-0.5 0.5-1 1-1.5 1.5-2 2-2.5 2.5-3 3-3.5 3.5-4 4-4.5 4.5-5 5-5.5 5.5-6 6-6.5 6.5-7 7-7.5 7.5-8 8-8.5 8.5-9 9-9.5 9.5-10 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

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MS&E 252 Handout #12 Decision Analysis I 10/31/2007 Page 2 of 20 HW#4 Solutions Score-by-Question Distributions: Score on HW Question (./1) -2.00 -1.50 -1.00 -0.50 0.00 0.50 1.00 Question 1 10% 50% 90% Question 2 10% 50% 90% Question 3 10% 50% 90% Question 4 10% 50% 90% Question 5 10% 50% 90% Question 6 10% 50% 90% Question 7 10% 50% 90% Question 8 10% 50% 90% Question 9 10% 50% 90% Question 10 10% 50% 90%
MS&E 252 Handout #12 Decision Analysis I 10/31/2007 Page 3 of 20 HW#4 Solutions Distinctions These distinctions were prepared by the teaching team and reflect our best belief of the meanings of these terms. s Prospect : a fully defined possible future state of the world, a particular future, your life going forward with a particular event or possibility occurring. A prospect by definition must not involve any uncertainty. s Deal : A deal is consists of a set of future prospects and their associated probabilities. s Test - assessed form : Prior : The probability distribution of the distinction of interest conditioned on your information. Likelihood : Conditional distribution of the observed distinction given the distinction of interest. s Test - inferential form : Posterior : Conditional distribution of the distinction of interest given the observed distinction. Pre-posterior : The probability distribution of the observed distinction (e.g., test results) s Preference Probability : The preference probability for prospect P among a given ordered set of prospects B>…>W (B and W are the best and worst prospects, respectively) is the probability p at which the decision maker is indifferent between receiving prospect P for sure and receiving a deal on prospects B and W with probability p of B and probability (1-p) of W. Notes: 1) People with same preference probabilities will make the same decisions (though maybe different VOI – which depends on risk attitude), 2) preference probabilities are not really probabilities, but can be treated as such (substitution rule). s Five Rules of Actional Thought : the five rules can be remembered by using the phrase "POE'S Choice," since the five rules consist of the p robability rule , the o rder rule , the e quivalence rule, the s ubstitution rule , and the choice rule . s The probability rule: states that we shall consider the world (or all information relevant to a decision making) in terms of possible prospects (elemental possibilities) and their associated probabilities. s

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This note was uploaded on 06/16/2010 for the course MS&E 252 taught by Professor Howard during the Fall '08 term at Stanford.

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HW4_Soln - MS&E 252 Decision Analysis I Handout #12...

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