Supplement to Ch. 5 Decision Theory

Supplement to Ch. 5 Decision Theory - SupplementtoCh.5:...

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                 Supplement to Ch. 5:                  Decision Theory
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                          Decision Theory:  Represents a systematic  approach to decision making Decision Making:  Selecting a preferred  alternative from a number of alternatives.   # of alternatives - options   Criteria –  to evaluate alternatives       Uncertain future  
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                          Characteristics of a decision making situation  ideally suited for applying Decision Theory   # of alternatives - options   Criteria –  to evaluate alternatives       Possible to estimate financial consequences   Uncertain future  
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        Decision Theory                  Decision making process: Identify problem Establish criteria to evaluate alternatives    Identify alternatives Analyze and compare alternatives Select best alternative Implement best decision Feed Back and corrective action  
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    Decision Theory: Causes of poor  decisions                  Unforeseeable circumstances Failure to recognize or admit mistakes  Addressing symptoms  to the problem Skipping a step in systematic approach Sub-optimization Bounded rationality  
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        Decision Theory: Environments                   Decision making environments: Decision making under  complete uncertainty Decision making under partial uncertainty -  risk Decision making under  complete certainty    
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        Decision Theory                  Decision making under risk: Payoff Table approach Events  – what is likely to happen Alternatives  – choices Payoffs  - consequences Summarized in a table know as  Payoff  Table 
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Supplement to Ch. 5 Decision Theory - SupplementtoCh.5:...

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