Chapter 14 Intro - Chapter 14 Decision Analysis Decision...

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Chapter 14 Decision Analysis
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Decision Making Environments Decisions can occur under one of three circumstances: Conditions of certainty Conditions of uncertainty Conditions of risk Examples of each?
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Problem Formulation & Definitions A decision problem is characterized by decision alternatives, states of nature, and resulting payoffs The decision alternatives are the different possible strategies the decision maker can employ. The states of nature refer to future events, not under the control of the decision maker, which may occur.
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Problem Formulation & Definitions A conditional payoff (CP) is the consequence associated with a certain combination of a decision alternative and a state of nature. A payoff table is a list of all possible combinations of decision alternatives, states of nature and CPs.
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Philadelphia Eagles T-Shirt Example: Selling price = $10/unit Cost/unit = $6 Salvage Value = $3 Lost Goodwill = $2
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Chapter 14 Intro - Chapter 14 Decision Analysis Decision...

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