Decision Theory: Discussion Concerns and Complications Essay

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8/23/02

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C H A L T E R

Decision Theory

METHODS TO DISCUSSION CONCERNS

AND CHALLENGES

8-1. The objective of this question is to produce students use a personal experience to distinguish among good and bad decisions. A good decision is based on reasoning and all of the available details. A bad decision is one that is not based on common sense and the offered information. It will be possible for a regrettable or undesirable outcome to occur after a great decision continues to be made. It is also possible to have a favorable or perhaps desirable end result occur after having a bad decision.

8-2. The decision-making method includes the following steps: (1) define the challenge, (2) list the alternatives, (3) determine the likely outcomes, (4) evaluate the outcomes, and (5) select an evaluation criterion and make the ideal decision. The first four steps or perhaps procedures are normal for all decision-making problems. Step five, however , depend upon which decision-making

style used.

8-3. An alternative is known as a course of action that we have total control. A state of characteristics is a celebration or event in which we now have no control. An example of an alternative is deciding whether or not to adopt an umbrella to school or perhaps work on a certain day. Among the a state of nature is whether or not it will rainwater on a particular day.

8-4. The basic variations between decision-making models

under certainty, risk, and uncertainness depend on the amount of chance or risk that may be involved in the decision. A decision-making model underneath certainty assumes that we know with finish confidence the near future outcomes. Decision-making-under-risk models assume that we do not know the outcomes for a decision but that we can say for certain the possibility of incident of those final results. With making decisions under uncertainness, it is assumed that individuals do not know the outcomes that will arise, and furthermore, do not know the probabilities that these final results will occur. 8-5. EMV is the expected monetary value. This can be a expected returning that we will realize if the decision were repeated an infinite range of times. EVwPI is the anticipated value with perfect details. This is the come back or worth of making similar decision a great infinite quantity of times when we now have perfect or complete information. EVPI is the expected benefit of ideal information. This is simply the big difference between EMV and EVwPI. It is the

sum that we will be willing to pay to get perfect info.

8-6. A decision tree is definitely preferred into a decision desk when a range of sequential decisions are to be made. A sequential decision condition is one in which the end result of one decision becomes key point in making future decisions. For instance , if a decision maker is usually considering the possibility of acquiring info and a conclusion of whether or not to build a new plant, the decision to buy the new info is made п¬Ѓrst. Then, depending on the effects of the new information (if it is gathered), the decision to make the plant is created. Therefore , these types of decisions will be sequential. Is made ahead of the other.

8-7. A prior likelihood is the one that exists prior to additional information can be gathered. A posterior probability is one which can be calculated based on before probabilities and additional information. 8-8. The purpose of Bayesian analysis is usually to determine detras probabilities based upon prior possibilities and new information. Bayesian analysis works extremely well in the decision-making process anytime additional information is usually gathered. This info can then be coupled with prior odds in coming to posterior possibilities. Once these kinds of posterior probabilities are calculated, they can be found in the decision-making process as any other probability value. 8-9. The overall purpose of utility theory is to incorporate a decision maker's preference to get risk in the decision-making method. 8-10. A software application function can be assessed in a number of...



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