Decision Making Under Uncertainty

These flashcards cover key concepts related to decision making under uncertainty, focusing on expected values, decision trees, and associated probabilities.

Expected Value (EV)

A calculated average of possible outcomes, weighted by their probabilities, often used in decision making under uncertainty.

States of Nature

Different possible scenarios or outcomes that may occur, each associated with a probability.

Decision Tree

A graphical representation of possible decisions and their possible consequences, used for decision analysis.

Expected Monetary Value (EMV)

The average return from an investment or decision, calculated by weighting the potential outcomes by their probabilities.

Expected Value of Perfect Information (EVPI)

The maximum amount a decision maker would pay to have perfect information about uncertain events.

Moderate Success

A scenario where a project's performance is somewhat better than existing options, leading to a potential revenue outcome.

Major Success

A scenario where a project's performance is significantly better than existing options, leading to a higher potential revenue outcome.

Failure

A scenario where a project does not meet performance expectations, resulting in total loss of investment.

Conditional Probability

The probability of an event occurring given that another event has already occurred, important for analyzing dependent events.

Expected Profit with Perfect Prediction

The profit that could be realized if the outcome of a decision could be accurately predicted in advance.