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COMMERCE 2DA3 - Decision Making with Analytics study guide solution complete update McMaster University
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COMMERCE 2DA3 - Decision Making with Analytics study guide solution complete update McMaster University
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COMMERCE 2DA3 - Decision Making with Analyticsstudy guide solution complete update McMaster
University
Decision Analysis - A systematic approach to the study of decision making.
1. clearly define the problem
2. list all possible alternatives
3. identify all possible outcomes for each alternative
4. identify the payoff for each alternative and outcome combination
5. use a decision modelling technique to choose an alternative - The five steps of decision making are...
Decision making under certainty - A type of decision making where we know the consequence of all
alternatives.
Decision making under uncertainty - A type of decision making where we can list the possible future
outcomes but cannot estimate the probability that a specific outcome will occur.
Decision making under risk - A type of decision making where we have some idea about the probabilities
of each outcome.
...maximax, maximin, realism, equally likely, and minimax regret - The five different decision-making
criteria that can be used to make a decision under uncertainty are...
Maximax - A type of decision-making criteria where you choose the alternative with the best payoff, if
the best outcome happens. First for each alternative, find the maximum payoff over all possible
, outcomes. Next, find the maximum of them. Choose the alternative whose maximum payoff gives this
maximum.
Maximin - A type of decision-making criteria where you choose the alternative with the best payoff, if
the worst outcome happens. First for each alternative, find the minimum payoff over all possible
outcomes. Next, find the maximum of them. Choose the alternative whose minimum payoff gives this
maximum.
Criterion of Realism - A type of decision-making criteria where you calculate the realism payoff for each
alternative and select the alternative with the highest realism payoff.
Coefficient of Realism (a) - A number from 0 to 1 such that when a is close to 1, the decision criterion is
optimistic, and when a is close to zero, the decision criterion is pessimistic.
Equally Likely - A type of decision making criteria where you calculate the average payoff for each
alternative and select the alternative with the highest average payoff.
Minimax Regret - A type of decision making criteria where you find the alternative that minimizes the
maximum regret for each alternative. First find the regrets for all outcome-alternative combination.
Next, find the maximum regret for all alternatives and choose the minimum among them.
Opportunity loss/Regret - The amount lost by not picking the best alternative, calculated as the
difference between the optimal payoff for an outcome and the actual payoff for an outcome.
Expected Opportunity Loss (EOL) - The expected cost of not picking the best solution, calculated as the
weighted average of all the regrets. We select the alternative with the smallest value of this.
Expected Monetary Value (EMV) - The weighted average of all possible payoffs, where the weights are
the probabilities of outcomes. We select the alternative with the largest value of this.
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