# Shared Flashcard Set

## Details

Chapter 8 Management Sciences
Decision Analysis Chapter 8
19
10/11/2012

Term
 Categories of Decision Situations
Definition
 Situations in which: probabilities cannot be assigned to future occurrences Situations in which probailites can be assigned
Term
 payoff table
Definition
 is a means of organizing a decision situation, presenting the payoffs from different decisions given the various states of nature.
Term
 maximax criterion
Definition
 the decision maker selects the decision that will result in the maximum of maximum payoffs; an optimistic criterion.
Term
 maximin criterion
Definition
 the decision maker selects the decision that will reflect the maximum of the minimumpayoffs; a pessimistic criterion.
Term
 Regret is:
Definition
 the difference between the payoff from the best decision and all other decision payoffs.
Term
 avoid regret by:
Definition
 by selecting the decision alternative that minimizes the maximum regret.
Term
 Hurwicz criterion:
Definition
 is a compromise between the maximax and maximin criteria
Term
 coefficient of optimism, a:
Definition
 is a measure of the decision maker’s optimism
Term
 Hurwicz criterion multiplies:
Definition
 the best payoff by aand the worst payoff by 1- a, for each decision, and the best result is selected
Term
 equal likelihood( or Laplace) criterion
Definition
 multiplies the decision payoff for each state of nature by an equal weight, thus assuming that the states of nature are equally likely
Term
 dominant decision is
Definition
 one that has a better payoff than another decision under each state of nature.
Term
 appropriate criterion is dependent on:
Definition
 the “risk” personality and philosophy of the decision maker
Term
 Expected value is:
Definition
 computed by multiplying each decision outcome under each state of nature by the probability of its occurrence.
Term
 expected opportunity loss:
Definition
 is the expected value of the regret for each decision
Term
 expected value of perfect information (EVPI):
Definition
 is the maximum amount a decision maker would pay for additional information.
Term
 EVPI equals the:
Definition
 expected value given perfect information minus the expected value without perfect information
Term
 EVPI aslo equals the:
Definition
 expected opportunity loss (EOL) for the best decision.
Term
 That is it for chapter 8 notes
Definition
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