Ma22 - Fundamentals of Decision-Making Decision-makers may face three different kinds of situations uncertainty risk or certainty When a

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Fundamentals of Decision-Making Decision-makers may face three different kinds of situations: uncertainty, risk, or certainty. When a decision-maker faces uncertainty, he or she cannot reasonable assign probabilities to certain states of nature. That is, there is complete uncertainty as to which state of nature will occur. When a decision-maker faces risk, he or she is able to identify several possible state of nature and can assign probabilities to each of these states of nature. When a decision-maker faces certainty, he or she is able to identify the state of nature that will occur. Decision-makers are rarely able to make decisions under complete certainty. Decision-Making under Uncertainty: In a situation of uncertainty, the decision-maker is unable to assign probabilities to states of nature. As a result, the decision-maker cannot use probability to make the best decision. Rather, the following heuristics can be used: 1. Maximax: determine the outcome that maximizes the outcome for every alternative. That is, look for the
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This note was uploaded on 02/03/2011 for the course MAN 4504 taught by Professor Benson during the Spring '08 term at University of Florida.

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Ma22 - Fundamentals of Decision-Making Decision-makers may face three different kinds of situations uncertainty risk or certainty When a

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