Questions from Chapter 1
Name: UMA M PANNEERSELVAM Date: 01/29/2012
Bring to class Monday night for discussion and to hand in.
DL students: Formulate your responses and then e-mail to Shirish (TA) on or before Monday night, January 30, 2012.
TA: Shirish Lamichhane TA E-mail: email@example.com
Respond to the following questions from chapter 1 on pp12-13. Use this document to respond to the following question using MS Word. Type your responses below each question shown below and use as much space as you need for your response.
1.2 Explain how modeling is used in decision analysis. What is meant by the term "requisite decision model"? Ans: Modeling is used in decision analysis in several ways. Models facilitate gaining insights of a decision problem that may not be apparent or obvious on the surface. For example, influence diagrams and decision trees are used to represent the decision problem. Hierarchical and network models are used to understand the relationships among different aspects or objectives. Utility functions are used to model the way in which decision-makers value different outcomes and trade off competing objectives. A requisite decision model is a model that can be considered requisite only when no new intuitions emerge about the problem. In simple words, a requisite decision model is a model whose form and content are sufficient to solve a particular problem. Everything required to solve the problem is represented in the model or can be simulated by it (Phillips, 1987, p.37).
1.3 What role do subjective judgments play in decision analysis? Ans: Subjective judgments are important ingredients in decision analysis. Discovering and developing these judgments involves thinking hard and systematically about important aspects of a decision, which forms an essential part of decision analysis. However, it should also be kept in mind that personal insights might be limited and misleading as human beings are imperfect information processors. Thus, it is essential that personal judgments are taken into consideration, and at the same time human cognitive limitations are understood for improved decisions.
1.4 At a dinner party, an acquaintance asks whether you have read anything interesting lately, and you mention that you have begun to read a text on decision analysis. Your friend asks what decision analysis is and why anyone would want to read a book about it, let alone write one! How would you answer? Ans: Decision analysis consists of a framework and a tool kit for dealing with difficult decisions. It is used to help a decision maker think systematically about complex problems and to improve the quality of resulting decisions. Decision analysis offers guidance to normal people working on hard decisions using fundamental principles such as tools to understand the structure of the problem, uncertainties involved and the trade-offs inherent in alternative outcomes.
1.5 Your friend in Question 1.4, upon hearing your answer, is delighted! "This is marvelous," she exclaims. "I have this very difficult choice to make at work. I'll tell you the facts, and you can tell me what I should do!" Explain to her why you cannot do the analysis for her. Ans: Although decision analysis provides guidance for systematic thinking in hard decisions, it does not mean that it provides an alternative that must be blindly accepted. The decision maker should understand the problem thoroughly. Decision analysis does not relieve the decision maker from the obligations in facing the problem, or replace his or her intuition. Instead of providing solutions, it merely augments the decision maker’s thought process by providing insights into the objectives, trade-offs and uncertainties. Thus, the friend must go through the process of decision analysis to understand the problem which will help in better decisions.
1.10 "Socially responsible investing" first became...