Scribd Logo
Upload

Welcome to Scribd!

  • 2 views

    Class-3_Decision An -S

    Uploaded by

    jamiesomal

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Class-3_Decision An -S

    Uploaded by

    jamiesomal
    2 views9 pages

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    2 views9 pages

    Class-3_Decision An -S

    Uploaded by

    jamiesomal

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    You are on page 1of 9

    Decision Analysis

    • Decision analysis can be used to develop an optimal


    strategy when a decision maker is faced with several
    decision alternatives and an uncertain or risk-filled pattern
    of future events.
    • Even when a careful decision analysis has been conducted,
    the uncertain future events make the final consequence
    uncertain.
    • The risk associated with any decision alternative is a direct
    result of the uncertainty associated with the final
    consequence.

    1
    © 2019 Cengage. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
    license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
    Problem Formulation

    • A decision problem is characterized by decision


    alternatives, states of nature, and resulting payoffs.
    • The decision alternatives are the different possible
    strategies the decision maker can employ.
    • The states of nature refer to future events, not under the
    control of the decision maker, which may occur. States of
    nature should be defined so that they are mutually exclusive
    and collectively exhaustive.

    2
    © 2019 Cengage. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
    license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
    Expected Value of a Decision Alternative

    • The expected value of a decision alternative is the sum of


    weighted payoffs for the decision alternative.
    • The expected value (EV) of decision alternative di is
    defined as: N
    EV(di )  P( s j )Vij
    j 1
    where:
    N the number of states of nature
    P( s j ) the probability of state of nature s j
    Vij the payoff corresponding to decision
    alternative d j and state of nature s j

    3
    © 2019 Cengage. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
    license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
    Example: Pittsburgh Development Corp.

    Pittsburgh Development Corporation (PDC) purchased land


    that will be the site of a new luxury condominium complex.
    PDC commissioned preliminary architectural drawings for
    three different projects: one with 30, one with 60, and one
    with 90 condominiums.

    The financial success of the project depends upon the size of


    the condominium complex and the chance event concerning
    the demand for the condominiums. The statement of the PDC
    decision problem is to select the size of the new complex that
    will lead to the largest profit given the uncertainty concerning
    the demand for the condominiums.

    4
    © 2019 Cengage. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
    license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
    Example: Pittsburgh Development Corp.

    Consider the following problem with three decision alternatives


    and two states of nature with the following payoff table
    representing profits:[strong demand- 80%; weak demand- 20%]

    5
    © 2019 Cengage. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
    license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
    Influence Diagrams (1 of 2)

    • An influence diagram is a graphical device showing the


    relationships among the decisions, the chance events, and
    the consequences.
    • Squares or rectangles depict decision nodes.
    • Circles or ovals depict chance nodes.
    • Diamonds depict consequence nodes.
    • Lines or arcs connecting the nodes show the direction of
    influence.

    6
    © 2019 Cengage. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
    license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
    Influence Diagrams (2 of 2)

    7
    © 2019 Cengage. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
    license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
    Payoff Tables

    • The consequence resulting from a specific combination of a


    decision alternative and a state of nature is a payoff.
    • A table showing payoffs for all combinations of decision
    alternatives and states of nature is a payoff table.
    • Payoffs can be expressed in terms of profit, cost, time,
    distance or any other appropriate measure.

    8
    © 2019 Cengage. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
    license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
    Example: Pittsburgh Development Corp.

    • Assume that management is considering a 6-month market


    research study designed to learn more about potential market
    acceptance of the PDC condominium project. Management
    anticipates that the market research study will provide one of
    the following two results:
    1. Favorable report (77%): A significant number of the
    individuals contacted express interest in purchasing a PDC
    condominium. [When, Strong demand- 94%; Weak
    demand – 6%].
    2. Unfavorable report (33%): Very few of the individuals
    contacted express interest in purchasing a PDC
    condominium. [When, Strong demand- 35%; Weak
    demand – 65%].

    9
    © 2019 Cengage. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a
    license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

    You might also like