QADM - Decision Making
-
Upload
abdulmulla -
Category
Documents
-
view
226 -
download
0
Transcript of QADM - Decision Making
-
8/8/2019 QADM - Decision Making
1/19
DDECISIONECISION AANALYSNALYSIISSGroup MembersAbdul Mulla
Dipti BharwadaPrachi Jadhav
Vaibhav Patki
Vinit Singh
-
8/8/2019 QADM - Decision Making
2/19
A good decision is one that is based on logic, considers all available
data and possible alternatives, and applies the qualitative and
quantitative approaches to solve them
Decision Analysis (DA) provides structure and guidance for thinking
systematically about hard decisions
It allows a decision maker to take action with confidence gainedthrough a clear understanding of the problem
Decision Analysis helps to improve the quality of the resulting
decisions
-
8/8/2019 QADM - Decision Making
3/19
The Five commonly used decision criteria are as follows:
Maximin Criterion
Maximax Criterion
Hurwiczs alpha Criterion
Savages minimax regret Criterion
Laplaces Criterion
-
8/8/2019 QADM - Decision Making
4/19
Decision making under Certainty or Deterministic situation
Decision making under Risk or Stochastic situation
Decision making under Uncertainty
Conflict and Competitive situation (Games)
-
8/8/2019 QADM - Decision Making
5/19
Decision Making under Certainty
In this case the decision maker tends to maximize returns or
minimize costs. The decision taken is such that it satisfies such
criteria in a problem where he knows the outcomes with
certainty.
Decision Making under Uncertainty
In this case the problem is uncertain i.e. , the decision maker
cannot estimate or anticipate the probability of occurrence of the
events with each decision alternatives.
-
8/8/2019 QADM - Decision Making
6/19
Decision Making under Risk
In this case the decision maker can anticipate theprobability of occurrence of events that he cannot
control which is called State of Nature associated with
each decision alternative.
-
8/8/2019 QADM - Decision Making
7/19
y A decision problem is characterized by decision alternatives, states
of nature, and resulting payoffs.
y The decision alternatives are the different possible strategies the
decision maker can employ.
y The states of nature refer to future events, not under the control of
the decision maker, which may occur. States of nature should bedefined so that they are mutually exclusive and collectively
exhaustive.
-
8/8/2019 QADM - Decision Making
8/19
The consequence resulting from a specific combination of a
decision alternative and a state of nature is a payoff.
A table showing payoffs for all combinations of decision alternatives
and states of nature is a payoff table.
Payoffs can be expressed in terms of profit, cost, time, distance orany other appropriate measure.
-
8/8/2019 QADM - Decision Making
9/19
In the fall farmer is offered Rs. 50000 for his Apple crop, which will
be harvested in the beginning of the following year. If the farmer
accepts the offer, the money is his regardless of the quality orquantity of the harvest. If the farmer does not accept the offer, he
must sell his oranges in the open market after they are harvested.
Under normal conditions, the farmer can anticipate receiving Rs.
70000 on the open market for his harvest. If he experiences a Frost,
however then much of his harvest will be ruined & he can anticipate
receiving only Rs. 15000 in the open market.
-
8/8/2019 QADM - Decision Making
10/19
Determine recommended decisions, using each of the criterion
under the situation of uncertainty. ( for Hurwicz- alpha criterion, use
alpha= 0.4)
Determine recommended decision under the appropriate criterion if
in the past, the farmer has lost much of his harvest to frost 1 out of
every 7 years.
-
8/8/2019 QADM - Decision Making
11/19
Action Frost No Frost
Accept 50,000 50,000
Do Not Accept 15,000 70,000
-
8/8/2019 QADM - Decision Making
12/19
Action Minimum Payoff
Accept 50,000
Does N
ot Accept
15,000
According to Maximin criterion decision is to Acceptthe offer.
Maximin Value
-
8/8/2019 QADM - Decision Making
13/19
Action Maximum Payoff
Accept 50000
Does NotAcc
ept 70000 Maximax Value
According to Maximax Criterion recommended decision isto Not Accept the offer.
-
8/8/2019 QADM - Decision Making
14/19
Action Expected Payoff
Accept 50000
Does not Accept 42500
According to Laplace Criterion the recommendeddecision is toAccept the offer.
-
8/8/2019 QADM - Decision Making
15/19
Frost No Frost Expected
Payoff
Accept 50000 50000 50000
Does not
Accept
15000 70000 62143
Probability 1/7 6/7
According to EMV criterion the recommended
decision is do not accept the offer.
The corresponding EP is Rs. 62143.
-
8/8/2019 QADM - Decision Making
16/19
Action Frost No Frost
Accept 0 20000
Do Not Accept 35000 0
Action MaximumRegret
Accept 20000
Do Not Accept 35000
According to the Savage Criterion
recommended decision is to Accept the offer.
Minimax
Regret
-
8/8/2019 QADM - Decision Making
17/19
y Let = 0.4
Action Weighted payoff
Accept 50000*0.4 + 50000*0.6 = 50000
Do notAccept 70000* 0.4 + 15000* 0.6 = 37000
According to Hurwicz- alpha Criterion when is 0.4,the recommendation is toAccept the offer.
-
8/8/2019 QADM - Decision Making
18/19
y A Decision Tree is a chronological representation of the decision
problem.
y Each decision tree has two types of nodes; Round nodescorrespond to the states of nature while Square nodes correspond
to the decision alternatives.
y The Branches leaving each round node represent the different
states of nature while the branches leaving each square noderepresent the different decision alternatives.
y At the end of each limb of a tree are the payoffs attained from the
series of branches making up that limb. Squares orRectangles
depict decision nodes.
-
8/8/2019 QADM - Decision Making
19/19