Lecture 6- Evaluating Decisions- Decision Rules and Decision Trees.docx - \/Lecture 6 Evaluating Decisions Decision Rules and Decision Trees How to make

Lecture 6- Evaluating Decisions- Decision Rules and Decision Trees.docx

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/Lecture 6- Evaluating Decisions: Decision Rules and Decision Trees How to make decisions under uncertainty: 1) Examine decision alternatives 2) Look at possible events (i.e. outcomes may occur once a decision is made) 3) Calculate the payoff associated with each decision and outcome. A payoff table is used when: 1) The probabilities about the occurrence of states of nature are not known or are difficult to be estimated. 2) A simple best-case / worst-case analysis is required. Average Payoff Strategy- Each event is equally likely to occur Aggressive Strategy- Optimistic approach, choose the best payoff/highest
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  • Summer '20
  • opportunity loss, Average payoff strategy

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