Decision Making

1. Decision Alternatives

2. Uncertain events that occur after a decision is made, along with possible outcomes

   1. Mutually exclusive

   2. Collectively exhaustive

3. Consequences associated with each decision and outcome are usually expressed as payoffs in a payoff table

Approaches to Decisions

• Aggressive Approach / Optimistic Approach

  • Best of the best payoff

  • Choose the decision with the smallest potential minimum value

• Conservative Approach / Pessimistic Approach

  • Best of the worst payoff

  • Choose the decision with the smallest potential maximum value

• Opportunity Loss

  • Represents regret that people often feel after making a non-optimal decision

  • Find the best outcome in each state

  • Subtract the best value from each value in column

  • Choose the decision with the smallest potential maximum value