Solutions Chapter 1

Solutions Chapter 1 - Solutions 1.1. Answers will be based...

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Solutions 1.1. Answers will be based on personal experience. It is important here to be sure the distinction is made between good decisions on one hand (or a good decision-making process) and lucky outcomes on the other. 1.2. We will have models to represent the decision structure as well as uncertainty and preferences. The whole point of using models is to create simplifications of the real world in such a way that analysis of the model yields insight regarding the real-world situation. A requisite model is one that includes all essential elements of the problem. Alternatively, a requisite model is one which, when subjected to sensitivity analysis, yields no new intuitions. Not only are all essential elements included, but also all extraneous elements are excluded. 1.3. Subjective judgments will play large roles in the modeling of uncertainty and preferences. Essentially we will build representations of personal beliefs (probabilities) and preferences (utilities). In a more subtle — and perhaps more important — way, subjective judgments also direct the modeling process. Subjective judgments are necessary for determining the appropriateness of a model’s structure, what should be included in the model, and so on. Thus, subjective judgments play central roles in decision analysis. Good decision analysis cannot be done without subjective judgments. 1.4. An appropriate answer would be that decision analysis can improve your decisions — the way you make decisions — by providing a framework for dealing with difficult decisions in a systematic way. Along with the analytical framework, decision analysis provides a set of tools for constructing and
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This note was uploaded on 12/04/2011 for the course BUSINESS 500 taught by Professor John during the Spring '11 term at Kansas.

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Solutions Chapter 1 - Solutions 1.1. Answers will be based...

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