Decision Analysis + Bayes Rule
_________________ decisions generally require a test or analysis to be done and then wait for the results of the test which would give a better indication of the results of the next decision
Contingent
The most we would pay for perfect information is translated in the
EV of PI
Larger firms should use the ________________ decision rule
MAXIMAX
This decision rule has high reward but also high risk
Maximax
This decision rule can be used to hedge against the worst possible outcome of a decision. Pessimistically assumes that nature will be against us.
Maximin
This decision rule has low reward but also low risk
Maximin
Another way of approaching decision problems is using opportunity loss (regret).
Minimax
The set of strategies available to a decision maker is known as the
alternatives
If the value of the sensitivity analysis for the probability of a state of nature was +/- 0.05 to the original change point, we may want to spend money on a ________ ___________ __________, because we would not be confident with our decision given the probability.
better market analysis
Alternatives, Criteria and States of Nature are ________________ of decision problems
characteristics
MAXIMIN is often known as the ____________ criteria
conservatives
_________ in a decision problem represents various factors that are important to the decision maker and are the basis for making decisions about the alternatives
criteria
A square in a decision tree represents a
decision node
In a payoff matrix, what are the four pieces of information given
decision, alternatives, states of nature, payoff values
A circle in a decision tree represents a
event node (state of nature)
Good decisions do not always result in
good outcomes
To convert a matrix to a regret matrix, take the _____ of each column, and use this max and subtract each payoff value from the max.
max
In a MAXIMAX decision rule, take the ______ of the rows of the alternatives, and take the _____ of those row values
max, max
Name three non-probabilistic methods of decision rules
maximax, maximin and minimax
In a regret matrix, when the subtractions have been done, we select the ________ of each row alternative, and then select the ________ of each row values
maximum, minimum
In a MAXIMIN decision rule, take the _______ of the rows of alternatives, and take the _____ of those row values
min, max
MAXIMAX is often known as the ____________ criteria
optimistic
Probabilistic decision rules can be used if the states of nature in a decision problem can be assigned _______________ that represent their likelihood of occurence
probabilities
When making decisions, the key to success is using data and common sense to take smart risks, to strike a balance between downside ________ and upside __________
risk, rewards
You can't predict the future. But you can be smart about how you manage decisions in the face of _____ & _____________
risk, uncertainty
It is important to accompany any decision analysis with a ______________ ______________ as a key component of the analysis.
sensitivity analysis
______________ ____ ________ in a decision problem correspond to future events that are not under the decision maker's control
states of nature
It is reasonable to expect good outcomes to occur more frequently when using a __________ approach to decision making than if we make decisions in a different manner
structured
The maximax criterion is appropriate when the decision maker can
survive even the worst payoff
A triangle in a decision tree represents a
terminal node (end of decision)