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Decision Theory - Decision Theory Decision Making Must have...

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Decision Theory 1 Decision Theory Robert  Bugge Decision Making: Must have good information Must  know the results of your decisions Must be done intelligently Must be  communicated Decision Theory is a structured approach  to decision making. Used for a wide range of operational management  decisions, including:   capacity & location planning, financing,  equipment selection, product & service design.
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Decision Theory 2 Components of the Decision Theory Process Identify possible future conditions called states of nature Develop a list of possible alternatives , one of which may be to do nothing Determine the payoff associated with each alternative for every future condition If possible, determine the likelihood of each possible future condition Evaluate alternatives according to some decision criterion and select the best alternative
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Decision Theory 3 Decision Environments Uncertainty - Environment in which it is impossible to assess the likelihood of various future events Risk – Environment in which certain future events have probable outcomes Certainty – Environment in which relevant parameters have known values
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Decision Theory 4 Decision Making under Uncertainty Maximax –
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