3325p11hs a decision making tools

Terms a alternative a course of action or strategy

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Unformatted text preview: ision Making 1. Terms: a. Alternative – a course of action or strategy that may be chosen by the decision maker b. State of nature – an occurrence or a situation over which the decision maker has little or no control A–6 Fundamentals of Decision Making 2. Symbols used in a decision tree: a. – decision node from which one of several alternatives may be selected b. – a state-of-nature node out of which one state of nature will occur A–7 Decision Tree Example A decision node A state of nature node Favorable market t uc t tr ns plan Co ge lar Construct Construct small plant small Do no thi ng Unfavorable market Favorable market Unfavorable market A–8 Decision Table Example Alternatives Construct large plant Construct small plant Do nothing State of Nature Favorable Market Unfavorable Market $200,000 –$180,000 $100,000 –$ 20,000 $ 0 $ 0 A–9 Decision-Making Environments Decision making under uncertainty Complete uncertainty as to which state of nature may occur Decision making under risk Several states of nature may occur Each has a probability of occurring Decision making under certainty State of nature is know...
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