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Lecture Outline
Decision Analysis Decision Making without Probabilities Decision Analysis with Excel Decision Analysis with OM Tools Decision Making with Probabilities Expected Value of Perfect Information Sequential Decision Tree
Supplement 1-1
Copyright 2009 John Wiley & Sons, Inc.
Decision Analysis
Quantitative methods
a set of tools for operations manager a set of quantitative decision-making techniques for decision situations in which uncertainty exists Example of an uncertain situation
Decision analysis
demand for a product may vary between 0 and 200 units, depending on the state of market
Copyright 2009 John Wiley & Sons, Inc.
Supplement 1-2
Decision Making Without Probabilities
States of nature
Events that may occur in the future Examples of states of nature:
high or low demand for a product good or bad economic conditions
Decision making under risk
probabilities can be assigned to the occurrence of states of nature in the future probabilities can NOT be assigned to the occurrence of states of nature in the future
Supplement 1-3
Decision making under uncertainty
Copyright 2009 John Wiley & Sons, Inc.
Payoff Table
Payoff table
method for organizing and illustrating payoffs from different decisions given various states of nature
Payoff
outcome of a decision
States Of Nature Decision a b 1 Payoff 1a Payoff 1b 2 Payoff 2a Payoff 2b
Copyright 2009 John Wiley & Sons, Inc. Supplement 1-4
Decision Making Criteria Under Uncertainty
Maximax
choose decision with the maximum of the maximum payoffs
Maximin
choose decision with the maximum of the minimum payoffs choose decision with the minimum of the maximum regrets for each alternative
Supplement 1-5
Minimax regret
Copyright 2009 John Wiley & Sons, Inc.
Decision Making Criteria Under Uncertainty (cont.)
Hurwicz
choose decision in which...