BU288 Lecture Notes - Lecture 1: Decision Analysis, Pessimism, Spreadsheet
Document Summary
Bu 275 - chapter 12 - decision analysis. Decision situaions can be categorized into 2 classes: situaions in which probabiliies cannot be assigned to future occurrences and situaions in which probabiliies can be assigned. Decision alternaives: diferent possible strategies decision maker can employ. States of nature: an actual event that may occur in the future (good economic condiions, bad economic condiions) determines outcome of decision; are mutually exclusive. Payof tables: organizing a decision situaion, including the payofs from diferent decisions given the various states of nature: payofs typically expressed in terms of proit revenues or cost. Decision criteria: maximax, maximin, manimax regret, hurwicz, equal likelihood. Maximax criterion: results in the maximum of the maximum payofs. Decision maker assumes that the most favourable state of nature for each decision alternaive will occur. Decision maker who uses maximax criterion assumes a very opimisic future with respect to the state of nature. Maximin criterion: results in the maximum of the minimum payof pessimisic.
