Opman 5.2

Flashcards covering key concepts in Decision Theory, specifically focusing on expected value and decision trees.

Expected Value (EV)

A criterion used to determine the expected payoff of alternatives and choose the one with the best expected outcome.

Decision Tree

A schematic representation used to analyze sequential decisions with decision nodes and chance nodes.

Certainty

An environment where relevant parameters have known values.

Uncertainty

An environment where it is impossible to assess the likelihood of various possible future events.

Risk

An environment where certain future events have probabilistic outcomes.

Probability

The measure of the degree of sureness or uncertainty of the occurrence of an event.

Expected Monetary Value (EMV)

The expected payoff from different alternatives, taking into account their probabilities.

Payoff

The return received from a particular decision or action.

Chance Node

Represents uncertain outcomes in a decision tree, depicted by a circular node.

Decision Node

Represents a decision point in a decision tree, depicted by a square node.

Analyzing from Right to Left

The method used in decision trees to assess the optimal alternatives and make decisions.

Nature

The state of the environment affecting the outcome of a decision in risk management.

Decision Making Under Risk

The process of making decisions when probabilities of outcomes are known but exact outcomes are uncertain.

EMV Formula

Calculated by multiplying payoffs by their probabilities and summing the results.

Schematic Representation

A visual depiction of available alternatives along with their possible consequences, as seen in decision trees.