Page 287 - DCOM303_DMGT504_OPERATION_RESEARCH

Operations Research Dilfraz Singh, Lovely Professional University

Notes Unit 14: Decision-making

CONTENTS
Objectives

Introduction
14.1 Decision-making under Certainty

14.2 Decision Tree Analysis
14.3 Decision-making under Risk
14.4 Decision-making under Uncertainty

14.4.1 Pessimistic Decision Criterion
14.4.2 Optimistic Decision Criterion
14.4.3 Savage Opportunity Loss Decision Criterion

14.4.4 Equally likely Decision Criterion
14.4.5 Criterion of Realism (Hurwicz Criterion)
14.5 Expected Value

14.6 EVPI
14.7 Summary

14.8 Keywords
14.9 Review Questions
14.10 Further Readings

Objectives

After studying this unit, you will be able to:
 Explain the concept of decision-making under certainty, risk and uncertainty
 Determine the expected value of perfect information, expect opportunity loss and expected
monetary value associated with any decision
 Discuss the concept of EVPI
 Construct decision tree for making accurate decision

Introduction

Decision-making occurs in all fields of human endeavor. A look at the headlines in the newspapers
offers a glimpse of the vast range. There are economic, political, social and technical issues
involved in the decision-making process. But the same decision-making process that may be
observed for events worthy of inclusion on the 'Business Standards' front page underlies even
the most mundane human events like eating, sleeping or going to a show.

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