manufacturing (which products to produce‚ how much to produce‚ which technology to invest) marketing (new products‚ promotion strategies)‚ & so on. 3 – Decision Analysis 3 A list of alternatives. A list of possible future states of nature. Payoffs associated with each alternative/state of nature combination. An assessment of the degree of certainty of possible future events. A decision criterion. The list of alternatives must be the set of mutually exclusive and collectively exhaustive decisions
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Analysis Example Consider the following problem with three decision alternatives and three states of nature with the following payoff table representing profits: States of Nature s1 s2 s3 d1 4 4 Decisions d2 0 3 d3 1 5 Which decision do you choose? -2 -1 -3 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
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Problem No. 3 In a certain lottery‚ a lottery ticket costs $2. In terms of the decision to purchase or not to purchase a lottery ticket‚ suppose that the following payoff table applies: Decision Alternatives Win s1 Loses s2 Purchase lottery ticket‚ d1 300‚000 -2 Do not purchase lottery ticket‚ d2 0 0 Payoff Table a.) A realistic estimate of the chances of winning is 1 in 250‚000. approach to recommend a decision. Use the expected value Answer: Given: Realistic estimate
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state occurs. Payoff tables are organized so that the decision situations can be analyzed. Using a payoff table is a means of organizing a decision situation‚ including the payoffs from different decisions‚ given the various states of nature. Each decision will result in a specific outcome corresponding to the particular state of nature that occurs in the future. Payoffs are usually expressed as revenues or costs‚ but the can be expressed in a variety of values. Once a payoff table has been organized
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Chapter 13: Chi-Square Applications SHORT ANSWER 1. When samples of size n are drawn from a normal population‚ the chi-square distribution is the sampling distribution of = ____________________‚ where s2 and are the sample and population variances‚ respectively. ANS: PTS: 1 OBJ: Section 13.2 2. Find the chi-square value for each of the right-tail areas below‚ given that the degrees of freedom are 7: A) 0.95 ____________________ B) 0.01 ____________________ C) 0.025 ____________________
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decision-making under uncertainty‚ including expected payoff‚ expected opportunity loss‚ maximin‚ maximax‚ and minimax regret. 3. Learn how to construct and analyze decision trees. 4. Understand aspects of utility theory. 5. Learn how to revise probabilities with sample information. CHAPTER OUTLINE 19.1 The Decision Table and Decision Making Under Certainty Decision Table Decision-Making Under Certainty
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Discussion Paper No. 2010‐21 Daniele Nosenzo‚ Theo Offerman‚ Martin Sefton and Ailko van der Veen December 2010 Inducing Good Behavior: Bonuses versus Fines in Inspection Games CeDEx Discussion Paper Series ISSN 1749 ‐ 3293 The Centre for Decision Research and Experimental Economics was founded in 2000‚ and is based in the School of Economics at the University of Nottingham. The focus for the Centre is research into individual and strategic decision‐making
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DECISION ANALYSIS PROBLEMS Many decision analysis problems can be viewed as having three variables: decision alternatives‚ states of nature‚ and payoffs. • Decision alternatives are the various choices or options available to the decision maker in any given problem situation. On most days‚ financial managers face the choices of whether to invest in blue chip stocks‚ bonds‚ commodities‚ certificates of deposit‚ money markets‚ annuities‚ and other investments. Construction decision makers must
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True B. False 3. A decision tree branches out to include all of the possible decisions and all of the possible events we are capable of identifying. A. True B. False A. True B. False 4. Because Payoffs and Probabilities are estimates‚ sensitivity analysis is useful. A. True B. False A. True B. False 5. A decision tree requires five or more branches to be useful. A. True B. False A. True B.
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on-line course that can be found via my website: http://www.stanford.edu/∼jacksonm/ The basic elements of performing a noncooperative 2 game-theoretic analysis are (1) framing the situation in terms of the actions available to players and their payoffs as a function of actions‚ and (2) using various equilibrium notions to make either descriptive or 1 For graduate-level treatments‚ see Roger Myerson’s (1991) Game Theory: Analysis of Conflict‚ Cam- bridge‚ Mass.: Harvard University Press; Ken
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