UNIVERSITY OF MANNHEIM

CC501 DECISION ANALYSIS

Course Syllabus
Fall 2016

Instructor: İrem Demirci

E-mail: idemirci@mail.uni-mannheim.de
Phone: +49 (621) 181-1699
Office: L9 1-2, Rm. 303
Office Hours: By appointment
Meetings: First class of the semester will be held on September 5th in SN 163.
Lectuere 1: Monday B5 (17:15-18:45) in A 001 Großer Hörsaal B6
Lectuere 2: Wednesday B5 (17:15-18:45) in SO 108 Hörsaal Schloss Schneckenhof Ost
Lecture 1 and Lecture 2 are not substitutes; each covers a different topic. See the tentative class schedule.

Course Description:

This course is composed of three parts. The first part deals with decision making under certainty. Here
are some of the topics covered in this part: How to structure a decision problem, derive objectives and find
alternatives? How to make decisions under multiple conflicting objectives (particularly using Multiple-
Attribute Value Theory (MAVT))? In the second part, we will cover a variety of topics related to decision
making under uncertainty such as visualizing problems using decision matrices and decision trees, Bayes’
Theorem and the value of imperfect information, NPV and real options. Finally, the last part deals with
risk attitudes, particularly with Expected Utility Theory (EUT) and Prospect Theory (PT).

Course Objective:

This course aims to help you to make better decisions by teaching you the techniques to deal with complex
and hard decisions, and by pointing out the common mistakes of intuitive decision making.

Prerequisites:

While there are no formal prerequisites associated with this course, you are recommended to have com-
pleted the two-semester finance module of the Mannheim Bachelor program (or equivalent courses). The
lecture generally assumes basic knowledge in mathematics (calculus, optimization) and
statistics. Please read “Chapter 10: Probability Theory” (p. 267-280) of Decision Analysis For the
Professional (see below) in order to review the basics of probability and statistics, and study the “Sup-
plementary Math Handout for Decision Analysis” posted on ILIAS for a review of the math concepts
that will be used in this course.

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Course Website:

The syllabus, lecture slides, problem sets, announcements and other material will be distributed via
ILIAS. All students must have access to the ILIAS web site for this course. Please familiarize yourself
with ILIAS, and check it on a daily basis to ensure that you have the most current course information. I
will also use the e-mail feature on ILIAS to make announcements, so please make sure that your ILIAS
e-mail address is correct. (https://ilias.uni-mannheim.de/)

Textbooks:

There are three books that we will cover in this class:

1) The first textbook is by Franz Eisenführ, Martin Weber, and Thomas Langer
(EWL), titled Rational Decision Making, 1st Edition, 2010, from Springer. Hard
copies are available at the library.

2) The second book is titled Value-Added Decision Making for Managers, 2012,
from CRC Press, by Kenneth Chelst and Yavuz Burak Canbolat (CC). Hard copies
are available at the library.

3) We will also cover some of the chapters of Decision Analysis for the Pro-
fessional by Peter McNamee and John Celona (MC), 4th Edition, 2008, from
SmartOrg Inc. You can download the pdf version of the book for free at
http://smartorg.com/2010/11/decision-analysis-for-the-professional/.

Additional Reading:

Articles and other additional material will be assigned throughout the course and will be uploaded on
ILIAS. These readings are to support your understanding of the topics covered in the lecture notes.

Final Exam:

Your course score will be based 100% on your final exam. The final exam is a 90-minute exam composed
of 4 parts. The first part consists of short-answer questions, which are mostly qualitative questions. In
the next three parts, you will be presented with 3 different problems where you will be tested on your
ability to approach to different cases. Although, most of these are numerical questions, you might also
be asked to interpret your findings.

About a week after the final grades are posted, you will receive an e-mail with the instructions regarding
the exam review. Students are required to sign up for the review and walk-ins are not allowed. Further
instructions will be provided in this e-mail. You can find the exam dates at
http://www.uni-mannheim.de/studienbueros/pruefungen/livetermine/mmm/

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Preparing for the Lectures:

Concepts will be built on top of each other, therefore not studying the material on a daily basis might
result in a poor understanding of future chapters. You should find it helpful to read the relevant chapters
from the textbooks before we cover the material in class. Familiarizing yourself with the concepts before
the class can help you to evaluate your understanding, absorb the new information more easily, and raise
more questions.

After the lecture you should go through the notes, review what we did in the class and what we will
cover next class. Lecture notes will include examples and in-class exercises that are designed to help you
understand the concepts better, therefore you should spend time on solving them. Also, make sure you
know the concepts listed under “Keywords”, and that you have a good answer for each “End-of-the-
lecture question”, both of which are provided in the lecture slides.

You will be provided with three problem sets throughout the semester (one for each part). I will solve
some of the assignment questions in the class, but it is your responsibility to work on the problem sets
which will help you to check your understanding of the material. Group discussion of the assignments is
highly encouraged.

Learning Agreement:

If you are planning on studying abroad and taking a course similar to CC 501, send me an email with the
following information: Learning Agreement with your personal information, signature, and the course
you want to have accredited, and detailed Syllabus of the course (and its translation if the Syllabus is
not in English). You can download the Learning Agreement here:
http://www.bwl.uni-mannheim.de/en/programs/master programs/mmm/studying abroad/

You will be informed once a decision on your learning agreement has been made. For a course to be
accredited it should satisfy the following requirements: (i) The course has to be at the Master level, (ii)
It has to cover most of the topics that are covered by CC 501 (see the Class Schedule), (iii) It has to
contain a written exam.

Exchange Students:

If you are an exchange student and your home university requires your grades to be submitted by a date
earlier than the University of Mannheim’s grade submission deadline, please consult with me before you
take this course.

Tentative Class Schedule:

The first lecture of the semester will take place on Monday September the 5th in SN 163. You will
be informed via e-mail if any of the lectures is canceled. I reserve the right to make adjustments to the
lecture schedule to best serve the interest of the class.

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Meeting Date Lecture Topic Chapter (BOOK)

PART I: DECISION MAKING UNDER CERTAINTY

1 09/05/2016 Introduction and Structuring Decision Problems 1,2 (EWL) and 1 (CC)
2 09/07/2016 Generating Objectives and Alternatives 3,4 (EWL) and 4 (CC)
3 09/12/2016 Generating Objectives and Alternatives 3,4 (EWL) and 4 (CC)
4 09/14/2016 Multi-Attribute Value Theory 5 (EWL) and 5 (CC)
5 09/19/2016 Multi-Attribute Value Theory 5 (EWL) and 5 (CC)
6 09/21/2016 Determination of the Weights 6 (EWL) and 5 (CC)
7 09/26/2016 Determination of the Weights 6 (EWL) and 5 (CC)
8 09/28/2016 Determination of the Weights 6 (EWL) and 5 (CC)
10/03/2016 Holiday - No class
9 10/05/2016 Incomplete Information 6 (EWL) and 5 (CC)
10 10/10/2016 Incomplete Information 6 (EWL) and 5 (CC)
11 10/12/2016 PROBLEM SET 1 - SOLUTION

PART II: DECISION MAKING UNDER UNCERTAINTY

12 10/17/2016 Introduction 2 (EWL), 2,3 (MC) and 2,10 (CC)
13 10/19/2016 Introduction 2 (EWL), 2,3 (MC) and 2,10 (CC)
14 10/24/2016 Bayes’ Theorem 7 (EWL), 4 (MC) and 11 (CC)
15 10/26/2016 Bayes’ Theorem 7 (EWL), 4 (MC) and 11 (CC)
16 10/31/2016 NPV and Real Options Lecture Note
17 11/02/2016 NPV and Real Options Lecture Note
18 11/07/2016 Subjective Probabilities, Heuristics and Biases 7 (EWL) and 13,14 (CC)
19 11/09/2016 PROBLEM SET 2 - SOLUTION

PART III: MODELING ATTITUDES TOWARDS RISK

20 11/14/2016 Expected Utility Theory and Risk Attitudes 9 (EWL), 5 (MC) and 12 (CC)
21 11/16/2016 Expected Utility Theory and Risk Attitudes 9 (EWL), 5 (MC) and 12 (CC)
22 11/21/2016 Expected Utility Theory and Risk Attitudes 9 (EWL), 5 (MC) and 12 (CC)
23 11/23/2016 Prospect Theory 13 (EWL)
24 11/28/2016 Prospect Theory 13 (EWL)
25 11/30/2016 Prospect Theory 13 (EWL)
26 12/05/2016 PROBLEM SET 3 - SOLUTION