Page 305 - DCOM303_DMGT504_OPERATION_RESEARCH

Operations Research

Notes  Comparing the utility analysis for a risk taker with a risk avoider, we see that, even with
the same decision problem, different attitudes toward risk can lead to different
recommended decisions.

14.8 Keywords

Acquiescence: Doing everything as asked without questioning the logic.
Actions: These are the options an agent ponders. Actions are often represented by rows in a
table.
Conditions: These are how things turn out independently of actions. Conditions are represented
by columns.

Dishonesty: Trying to obtain someone else's decision; trying to anticipate the outcome without
actually going through the intellectual stages.
Falsification: Not being able to solve the problem, illegible recording of calculations and final
outcomes.
Gambling: Trying to fit decision variable configurations in the process of decision-making by
trial and error; assuming that the problem cannot be solved.
Impatience: Skipping the process of analysis and reaching a conclusion without any backup
reasoning.
Inertia: Skipping the study of facts because it is "not important" promising oneself to come back
to it later; being "confused" because certain things may not be clear.

Outcomes: These are the states that result from actions under various conditions.
Semantics: Calling the decision-making situation totally absurd, very tough, too much time-
consuming.

14.9 Review Questions

1. Consider the decision problem with the profit payoff table with four decision alternatives
and three states of nature.
States of Nature

Alternative X Y Z
A 4 3 3
B 5 2 5
C 5 6 2
D 6 1 4

(a) If the decision maker knows nothing about the probabilities of the three states of
nature, what is the recommended decision using the minimax rule.

(b) Assume that the payoff table provides cost rather than profit payoffs. What is the
recommended decision now?
2. Consider the decision problem with the payoff table with four decision alternatives and
three states of nature.

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