Decision Analysis
Decision analysis: a systematic approach to evaluating and making choices among alternatives, considering the potential outcomes and uncertainties involved.
Qualitative: This type of analysis focuses on subjective assessments and insights, often involving expert opinions and stakeholder perspectives to understand the implications of each alternative.
Quantitative: This type of analysis relies on numerical data and statistical methods to evaluate alternatives, providing measurable outcomes and probabilities that can assist in making informed decisions.
Decision making analysis: a method for reducing uncertainty in the decision making process
An alternatives is the options available to the decision maker. Sometimes DO NOTHING is a viable option.
A state of nature is an actual event that may occur in the future.
A payoff table means of organizing a decision situation, presenting the payoffs from different decisions given the various states of nature
In the maximin criterion( pessimistic criterion) the decision maker selects the decision that will reflect the maximum of the minimum payoffs.
In the maximax criterion (optimistic criterion) the decision maker will selects the decision that will result in the maximum of maximum payoffs.
Minimax regret criterion: This approach focuses on minimizing the potential regret by selecting the decision that has the least possible maximum regret for each decision alternative
Equal likelihood criterion multiplies the decision payoff for each state of nature by an equal weight, thus assuming that the states of nature are equally likely to occur.
Expected value is computed by multiplying each decision outcome under each state of nature by the probability of its occurrence.
A decision tree is a diagram consisting of decision nodes (represented as squares), probability nodes (circles: chance node), and decision alternatives (branches).