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HO18-Professional Decision Modeling

# HO18-Professional Decision Modeling - Professional Decision...

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Professional Decision Modeling Presented to: Professional Decision Analysis Class Stanford University 23 February 2009 Presented by: Steven N. Tani Strategic Decision Group

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Professional Decision Modeling — Page 2 © 2009 Strategic Decisions Group. All rights reserved Agenda Why do we model? Modeling and intuition What is a good decision model? Best practices in decision modeling
Professional Decision Modeling — Page 3 © 2009 Strategic Decisions Group. All rights reserved Consider the following problem: A truck needs to cross a prairie that is 400 miles wide. The truck gets exactly 10 miles to the gallon and can hold a maximum of 18 gallons of fuel. There are many gas stations in the prairie – the maximum distance between any pair of gas stations is 10 miles. What is the minimum amount of fuel required to get the truck across the prairie? Crossing the Prairie

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Professional Decision Modeling — Page 4 © 2009 Strategic Decisions Group. All rights reserved Now, consider this similar problem: A truck needs to cross a desert that is 400 miles wide. The truck gets exactly 10 miles to the gallon and can hold a maximum of 18 gallons of fuel. There is an unlimited amount of fuel on each side of the desert, but no fuel available within the desert. The truck can establish any number of fuel caches inside the desert to store and recover fuel (without loss). What is the minimum amount of fuel required to get the truck across the desert? Crossing the Desert
Professional Decision Modeling — Page 5 © 2009 Strategic Decisions Group. All rights reserved We build models to overcome a severe limitation in our brainpower to process information. Our brains find it difficult to simultaneously handle more than a few pieces of information. Building a model is a useful “divide and conquer” strategy to work through a complicated problem. – We divide the problem into smaller pieces, each of which our brains can comprehend. – We build a model that represents the interaction of all the pieces. So, we should resist the urge to model for its own sake – We might be able to resolve some strategic decision situations without modeling.

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Professional Decision Modeling — Page 6 © 2009 Strategic Decisions Group. All rights reserved Agenda Why do we model? Modeling and intuition What is a good decision model? Best practices in decision modeling
Professional Decision Modeling — Page 7 © 2009 Strategic Decisions Group. All rights reserved We are happiest when the results of modeling and analysis agree with our intuitive “feel”. But what happens if they disagree? – First, we check to see if there is something wrong with the modeling - The model might have errors in it - The model might be too simple for the situation - The model might be incomplete – If the model looks OK, we need to “educate” our intuition - This is why we model - We “learn” by modeling

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