Lesson 4 - Decision Theory Flashcards

(9 cards)

1
Q

Decision Theory

A

Set of possible future conditions that will have a bearing on the result of the decision (states of nature), a list of alternatives a manager can choose from, with a known payoff for each alternative under each possible condition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Causes of poor decisions

A

Manager’s unwillingness to admit mistake, manager’s style Bounded rationality (limits to human ability, costs, time,..), sub optimization (decisions getting departmentalized, therefore being difficult to be optimal for whole organization)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Classification of certainty present

A
  • Certainty: relevant parameters (cost, demand, capacity) have known values
  • Risk: Means that certain parameters have probabilistic outcomes
  • Uncertainty means that it’s impossible to assess likelihood of future events
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Maximin

A

Determine worst possible payoff for each and take best “worst”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Maximax

A

Determine best possible payoff for each and take best “best”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Laplace

A

Determine Avg. payoff for each and take the best “average”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Minimax regret

A

Determine worst regret (best payoff-give payoff) and take best
“worst”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Decision Tree

A

chematic representation of alternatives available and their consequences,
particularly useful for sequential decisions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q
A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly