chapter 5s Flashcards
(16 cards)
what are the 3 characteristics of the decision theory?
a set of possible future conditions
a list of alternatives
a known payoff for each alternate under each possible future condition
what is a payoff table?
a table showing the expected payoffs for each alternative in every possible state of nature
what are the 7 steps in the decision process?
identify the problem
specifiy objectives and criteria for a solution
develop suitable alternatives
analyze and compare alternatives
select the best alternative
implement the solution
monitor to see that the desired result is achieved
what is bounded rationality?
the limitations on decision making caused by costs, human abilities , time, technology and availability of information
what is suboptimiza?
the restult of different departments each attempting to reach a solution that is optimum for that department
what is certainty?
relevant parameters, such as costs, capacity, and demand have known values
what is risk?
certain paramaters have probabilistic outcomes
what is uncertainty?
it is impossible to assess the likelihood of various possible future events
what is maximin?
choose the alternative with the best of the worse possible payoffs (best of worst)
what is maximax?
choose the alternative with the best possible payoff (best of best)
what is laplace?
choose the alternative with the best average payoff of any of the alternative
what is minimax regret?
choose the alternative that has the least of the worst regrets
what is the expected monetary value (EMV) criterion?
determine the best expected value among the alternatives
what is a decision tree?
a schematic representation of the available alternatives and their possible consequences
what is expected value of perfect information (EVPI)?
the difference between the expected payoff with perfect information and the expected payoff under risk
what is sensitivity analysis?
determining the range of probability for which an alternative has the best expected payoff
