1 / 16

Chapter 5: Decision-making Concepts

Chapter 5: Decision-making Concepts. Quantitative Decision Making with Spreadsheet Applications 7 th ed. By Lapin and Whisler. Decision Theory. Making a choice from a set of alternatives. Analyze which alternative optimizes outcome. Uses probability and statistics.

albert
Download Presentation

Chapter 5: Decision-making Concepts

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 5: Decision-making Concepts Quantitative Decision Making with Spreadsheet Applications 7th ed. By Lapin and Whisler

  2. Decision Theory • Making a choice from a set of alternatives. • Analyze which alternative optimizes outcome. • Uses probability and statistics. • Want a system for making the best choice. • Payoff table • Decision tree

  3. Certainty • Decision making under certainty involves making a choice where all outcomes are determined solely by the choice you make. • Example: Choosing what to wear.

  4. Uncertainty • Decision making under uncertainty involves making a choice where the outcomes are only partially determined by choice. This is more complex. • Example: Whether to carry an umbrella (or rain jacket).

  5. Acts, Outcomes, and Events • Acts are the decision maker’s choices. • Outcomes are the success of the decision (level of enjoyment, amount of profit, etc) • Events are the uncertainty that can occur in some situations.

  6. Example • Choose what to wear. • Acts – available outfits. • Outcomes – how good you look. • Should you carry an umbrella? • Act – carry an umbrella or don’t. • Event – It rains or it doesn’t • Outcomes – depend on both the act and the event.

  7. Decision Table (p.124)

  8. Decision Tree Stay Dry Rain No Rain Carry Umbrella Carry something extra you don’t need Get Wet Don’t Carry Umbrella Rain No Rain Be dry and free

  9. Some Terms to Know • Two measures: • Uncertainty • Comparative worth/Payoff

  10. Example (p.127)Choosing a Movement for Tippi-Toes A toy manufacturer must choose among four prototype designs for Tippi-Toes, a dancing ballerina doll. Each prototype represents a different technology. One is a complete arrangement of gears and levers. The second is similar, but it uses springs. Another works on the principle of weights and pulleys. The fourth design is controlled pneumatically through a series of valves.

  11. Choice of movement designs is based solely on comparison of the contributions to profits made by the four prototypes. • Only the following three events will be considered: Light demand(25,000 units), Moderate demand (100,000 units) or Heavy demand (150,000 units).

  12. Example

  13. Reducing the number of alternatives • An act that is dominated by another is an inadmissable act. If every entry in a single column of the payoff table is less than or equal to the corresponding entry in a column of another act then it is an inadmissable act. The remaining acts are admissableacts.

  14. Example

  15. Maximizing Expected Payoff:The Bayes Decision Rule • Suppose the following probabilities are associated to the demand for Tippi-Toes: • Light demand .10 • Moderate demand .70 totals to 1.00 • Heavy demand .20

More Related