Decision Theory

Decision Theory - Decision Theory 1 Decision Theory Robert...

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Unformatted text preview: 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. 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 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 Decision Theory 4 Decision Making under Uncertainty Maximax Choose the alternative with the best possible payoff Maximin- Choose the alternative with the best of...
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This note was uploaded on 02/27/2012 for the course MSOM 301 taught by Professor Bugge during the Spring '12 term at Temple.

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Decision Theory - Decision Theory 1 Decision Theory Robert...

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