Page 63 - DCAP208_Management Support Systems

Management Support Systems

Notes Self Assessment

Fill in the blanks:
3. .......................... models describe a single interval of a situation.
4. .......................... models represent scenarios that change over time.

5.3 Certainty, Uncertainty and Risk

Decision making process involves evaluating and comparing alternatives. During the process,
it is necessary to predict the future outcome of each proposed alternative. Decision situation are
often classified on the basis of what the decision maker knows or believes about the forecasted
result. We customarily classify this knowledge into three categories, ranging from complete
knowledge to total ignorance:
Certainty
Risk
Uncertainty

Did u know? When we are develop models, any of these conditions can occur, and different
kind of models are appropriate for each case.
Figure 5.1: Certainty, Uncertainty and Risk

5.3.1 Decision Making under Certainty

In decision making under certainty, it is assumed that complete knowledge is assumed available
– the decision maker knows exactly what the outcome of each course of action will be
(a deterministic environment). The decision maker is viewed as a perfect predictor on the future.
Certainly models are relatively easy to develop and solve, and they can yield optimal solution.

5.3.2 Decision Making under Uncertainty

In decision making under uncertainty, the decision maker considers situations in which several
outcomes are possible for each course of action. The decision maker does not know, or cannot
estimate, the probability of occurrence of the possible outcomes. The problem, in this case, is
more difficult because there is insufficient information – modeling involves assessment of the
decision maker’s attitude toward risk.
5.3.3 Decision Making under Risk

In decision made under risk (a probabilistic or stochastic decision-making situation), is one in
which the decision maker must consider several possible outcomes for each alternative, each

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