Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 237 views

    Decision Making Under Uncertainty

    Uploaded by

    amrita
    This document discusses statistical decision theory and decision making under uncertainty. It outlines several criteria for decision making under uncertainty, including maximax, maximin, Hurwicz, equal probabilities, and minimax regret. The document provides definitions and step-by-step explanations of each criteria. The criteria differ in their levels of optimism/pessimism and assumptions about probability distributions when making decisions under uncertainty.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Decision Making Under Uncertainty

    Uploaded by

    amrita
    237 views13 pages
    This document discusses statistical decision theory and decision making under uncertainty. It outlines several criteria for decision making under uncertainty, including maximax, maximin, Hurwicz, equal probabilities, and minimax regret. The document provides definitions and step-by-step explanations of each criteria. The criteria differ in their levels of optimism/pessimism and assumptions about probability distributions when making decisions under uncertainty.

    Original Description:

    decision making under uncertainty

    Original Title

    decision making under uncertainty

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document discusses statistical decision theory and decision making under uncertainty. It outlines several criteria for decision making under uncertainty, including maximax, maximin, Hurwicz, equal probabilities, and minimax regret. The document provides definitions and step-by-step explanations of each criteria. The criteria differ in their levels of optimism/pessimism and assumptions about probability distributions when making decisions under uncertainty.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    237 views13 pages

    Decision Making Under Uncertainty

    Uploaded by

    amrita
    This document discusses statistical decision theory and decision making under uncertainty. It outlines several criteria for decision making under uncertainty, including maximax, maximin, Hurwicz, equal probabilities, and minimax regret. The document provides definitions and step-by-step explanations of each criteria. The criteria differ in their levels of optimism/pessimism and assumptions about probability distributions when making decisions under uncertainty.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 13

    Statistical Decision Theory

    The Decision-Making Process


    Quantitative Analysis
    Logic
    Historical Data
    Marketing Research
    Problem Scientific Analysis Decision
    Modeling

    Qualitative Analysis
    Emotions
    Intuition
    Personal Experience
    and Motivation
    Rumors
    Steps to Good Decision Making
    1. Define problem and influencing factors.

    2. Establish decision criteria.

    3. Select decision-making tool (model).

    4. Identify and evaluate alternatives using decision-making tool (model).

    5. Select best alternative.

    6. Implement decision.

    7. Evaluate the outcome.


    Decision
    Theory
    Associated Terms:
    Alternative (Acts)
    Course of action or choice. Decision-maker chooses among
    alternatives.

    State of nature
    (Events)
    An occurrence over
    which
    the decision maker has no
    control.
    Types of Decision Making
    1) Decision making under certainty
    The outcome of a decision alternative is
    known (i.e., there is only one state of
    nature.)
    2) Decision making under risk
    The outcome of a decision alternative
    is not known, but its probability is
    known.
    3) Decision making under uncertainty
    The outcome of a decision alternative is not known,
    and even its probability is not known.
    Decision Making under Uncertainty

     The outcome of a decision alternative is not known,


    and even its probability is not known.

     A few criteria
    (approaches) are
    available
    for
    decision makers the
    to
    select according to
    their preferences
    and personalities
    Decision Making Under Uncertainty

    1. Maximax Criterion

    2. Maximin Criterion

    3. Minimax Regret Criterion

    4. Laplace Criterion (Equal Probabilities)

    5. Hurwiczalpha Criterion ( Rationality or Realism)


    Criterion 1: Maximax (Optimistic)

    An adventurous and aggressive decision maker may


    choose the act that would result in the maximum payoff
    possible

     Step 1 - Pick maximum payoff of each alternative.


     Step 2 - Pick maximum of those maximums in Step 1;
    its corresponding alternative is the decision.
     This is viewed as an optimistic approach, “Best
    of bests”.
    Criterion 2: Maximin (Pessimistic)
    This is also called Waldian criterion. This criterion of
    decision making stands for choice between alternative
    courses of action assuming pessimistic view of nature

    • Step 1 - Pick minimum payoff of each alternative


    • Step 2 - Pick the maximum of those minimums in Step 1,
    its corresponding alternative is the decision

    This is viewed as a pessimistic approach, “Best of worsts”


    Criterion 3: Hurwicz (Realism)
    This method is a combination of Maximin and Maximax criterion.
    Also known as criterion of rationality.
    neither too optimistic nor too pessimistic

    • Step 1 - Calculate Hurwicz value for each alternative


    • Step 2 - Pick the alternative of largest Hurwicz value as
    the decision.

    Hurwicz value of an alternative


    = (row max)() + (row min)(1-)
    where  (01) is called coefficient of realism.
    Criterion 4: Equal Probabilities
    The decision maker makes a simple assumption that each state
    of nature is equally likely to occur & compute average payoff
    for each. Choose decision with highest average payoff.

    Also known as Laplace criterion

    • Step 1 - Calculate the average payoff for each alternative.


    • Step 2 - The alternative with highest average if the decision.
    Criterion 5: Minimax Regret
    Application of the minimax criterion requires a table of losses or table
    of regret instead of gains.
    Regret is amount you give up due to not picking the best alternative in
    a given state of nature.
    Regret = Opportunity cost = Opportunity loss

    • Step 1 - Construct a ‘regret table’,


    • Step 2 - Pick maximum regret of each row in regret table,
    • Step 3 - Pick minimum of those maximums in Step 2, its
    corresponding alternative is the decision.

    You might also like