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Ch1-Introduction - Chapter 1 Introduction to Decision...

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Unformatted text preview: Chapter 1 Introduction to Decision Making Decision Analysis Science? "...prescriptive approach designed for normally intelligent people who want to think hard and systematically about some important real problems." - Keeney and Raiffa, 1976 "...when should we trust our instincts, and when should we be wary of them?...that our snap judgments and first impressions can be educated and controlled." - Malcolm Gladwell, 2005 Emotion? Decision Making What What makes decisions difficult? is a good decision? Decision Making What makes decisions difficult? Uncertainty Lack of control Complexity Trade-offs What else???? Decision Making What makes a good decision? Achieves goal Makes money Does not reduce utility Minimizes risk What else???? Decision Making Elements Values & Objectives What's important to you? What do you want to achieve? Decision Context Uncertain Events States of Nature Payoffs Consequences Decision Making Good decision / good outcome Rainy day; Take umbrella; Rains, stay dry. Good decision / unlucky outcome Sunny day; Don't take umbrella; Rains, get wet. Bad decision / lucky outcome Rainy day; don't take umbrella; No rain, stay dry. Bad decision / bad outcome Rainy day; Don't take umbrella; Rains, get wet. Decision Making Studying! Outcome: Decision is: Good Bad Good Bad Components of Decision Models Defined by probability distributions Exogeneous Variables to make decision about Performance variables Decision Variables MODEL = set of relationships Endogeneous Policies/ Constraints Rules, restrictions, what-ifs Decision Analysis Process Identify the problem Structuring the problem Identify objectives, criteria and alternatives Decompose and model the problem: Qualitative Considerations Quantitative Considerations Choose the best alternative Analyzing the problem Decision Analysis Process Cont'd Choose the best alternative Sensitivity Analysis Problem Solving encompasses all of the above and these steps Is further analysis needed? NO YES Implement the chosen alternative Types of Decision Models Conditions: Certainty Decision is: Simple Complex Dynamic Risk/Uncertainty Decision analysis, Utility theory Markov analysis Utility theory Probabilistic Dynamic Prog.; Case study; Breakeven analysis Goal Prog; AHP Dynamic Prog Student Introductions Decisions You've Made? For Next Class Begin reading Chapter 14 Do HW #2 & 3 ...
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