Scribd Logo
Upload

Welcome to Scribd!

  • Lecture 2 - Unit-I - Decision Theory

    Uploaded by

    SAJAL SRIVASTAVA
    2 views27 pages
    Decision theory provides a framework for rational decision making when outcomes are uncertain. It examines various decision making criteria for choosing between multiple courses of action or strategies. These criteria include Laplace's criterion which assumes equal probabilities between events; the criterion of optimism which chooses the strategy with the maximum payoff (maximax); the criterion of pessimism/Wald criterion which chooses the strategy with the minimum loss (maximin); and the minimax regret criterion which calculates regret from not choosing the optimal strategy for each event. Decision theory helps managers evaluate alternatives and choose robust strategies under uncertainty.

    Original Description:

    PPT ON Decision Theory

    Original Title

    Lecture 2_Unit-I_Decision Theory

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    Decision theory provides a framework for rational decision making when outcomes are uncertain. It examines various decision making criteria for choosing between multiple courses of action or strategies. These criteria include Laplace's criterion which assumes equal probabilities between events; the criterion of optimism which chooses the strategy with the maximum payoff (maximax); the criterion of pessimism/Wald criterion which chooses the strategy with the minimum loss (maximin); and the minimax regret criterion which calculates regret from not choosing the optimal strategy for each event. Decision theory helps managers evaluate alternatives and choose robust strategies under uncertainty.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    2 views27 pages

    Lecture 2 - Unit-I - Decision Theory

    Uploaded by

    SAJAL SRIVASTAVA
    Decision theory provides a framework for rational decision making when outcomes are uncertain. It examines various decision making criteria for choosing between multiple courses of action or strategies. These criteria include Laplace's criterion which assumes equal probabilities between events; the criterion of optimism which chooses the strategy with the maximum payoff (maximax); the criterion of pessimism/Wald criterion which chooses the strategy with the minimum loss (maximin); and the minimax regret criterion which calculates regret from not choosing the optimal strategy for each event. Decision theory helps managers evaluate alternatives and choose robust strategies under uncertainty.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 27

    Created By: Vikram Kumar Sharma

    Assistant Professor

    GL BAJAJ INSTITUTE OF MANAGEMENT AND


    RESEARCH
    Plot No-2, Knowledge Park –III, Greater Noida
    Subject: Decision Science
    Code: PG-35
    PGDM (BATCH: 2022-24, TERM: III)
    Topic:
    Decision Theory
    Discussion

    Decisions
    ?
    Decision

    ▰ The One Word that makes a Good Manager –

    Decisiveness
    Discussion
    Decision

    ▰ Something that you choose; a Choice.

    ▰ According to Cambridge Dictionary

    “A choice that you make about something after thinking about


    several possibilities.”
    Discussion

    Decision
    Science
    ?
    Decision Science

     ‘Decision Science’ is a collaborative approach involving


    mathematical formulae, business tactics, technological applications
    and behavioral sciences to help senior management make data driven
    decisions.

     Decision Science is the collection of quantitative techniques used to


    inform decision-making at the individual and population levels. It
    includes decision analysis, risk analysis, cost-benefit and cost-
    effectiveness analysis, constrained optimization, simulation
    modeling, and behavioral decision theory, as well as parts of
    operations research.
    Discussion

    Decision
    Theory
    ?
    Decision Theory

     ‘Decision Theory’ is a technique used for decision making in an


    uncertain condition or situation. It provides a framework and
    methodology for rational decision making when the outcomes are
    uncertain.

    Types:
    a) Normative: The leader allows a group to make the decision but
    facilitates the process. This may include making the decision if the
    group is unable to reach consensus.
    b) Descriptive: It is more about what will occur in a situation, not what
    should. It takes into consideration outside factor.
    Fundamental Concepts

     Courses of Action/Decision Alternatives/Strategies

     States of Nature/Consequences/Events/Scenarios

     Decision

     Payoff vs Cost Matrix

     Expected Payoff

     Decision Horizon
    Payoff Matrix
    Decision Making Process
    Decision Model
    Decision Model
    Discussion

    Decision Making Under Uncertainty

    ?
    Decision Making Under Uncertainty

    1. Laplace’s or Baye’s Criterion or Equal Probability

    2. Criterion of Optimism

    a) Maximax b) Minimin

    3. Criterion of Pessism/Wald Criterion

    a) Maximin b) Minimax

    4. Minimax Regret Criterion/Savage Criterion

    a) Maximization b) Minimization

    5. Hurwicz Criterion/Criteria of Realism

    a) Maximization b) Minimization
    Payoff Matrix
    1. Laplace’s / Baye’s Criterion

    Events
    N1 N2 N3 N4
    Strategies
    S1 1000 1500 750 0

    S2 250 2000 3750 3000

    S3 -500 1250 3000 4750

    S4 -1250 500 2250 4000


    Payoff Matrix
    2. Criterion of Optimism (Maximax)

    Events
    N1 N2 N3 N4
    Strategies
    S1 1000 1500 750 0

    S2 250 2000 3750 3000

    S3 -500 1250 3000 4750

    S4 -1250 500 2250 4000


    Cost Matrix
    2. Criterion of Optimism (Minimin)

    Events
    N1 N2 N3 N4
    Strategies
    S1 1000 1500 750 0

    S2 250 2000 3750 3000

    S3 -500 1250 3000 4750

    S4 -1250 500 2250 4000


    Payoff Matrix
    3. Criterion of Pessimism/Wald Criterion
    (Maximin)

    Events
    N1 N2 N3 N4
    Strategies
    S1 1000 1500 750 0

    S2 250 2000 3750 3000

    S3 -500 1250 3000 4750

    S4 -1250 500 2250 4000


    Cost Matrix
    3. Criterion of Pessimism/Wald Criterion
    (Minimax)

    Events
    N1 N2 N3 N4
    Strategies
    S1 1000 1500 750 0

    S2 250 2000 3750 3000

    S3 -500 1250 3000 4750

    S4 -1250 500 2250 4000


    4. Minimax Regret Criterion/Savage Criterion
    Payoff Matrix
    4. Minimax Regret Criterion/Savage Criterion
    (Maximization)

    Events
    N1 N2 N3 N4
    Strategies
    S1 1000 1500 750 0

    S2 250 2000 3750 3000

    S3 -500 1250 3000 4750

    S4 -1250 500 2250 4000

    Regret
    Table
    Cost Matrix
    4. Minimax Regret Criterion/Savage Criterion
    (Minimization)

    Events
    N1 N2 N3 N4
    Strategies
    S1 1000 1500 750 0

    S2 250 2000 3750 3000

    S3 -500 1250 3000 4750

    S4 -1250 500 2250 4000

    Regret
    Table
    Thank You !!

    You might also like