Uncertainity and risks
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Transcript of Uncertainity and risks
Uncertainity and risks
Prabhat kiran bhandari
Roll no:131 B
BIM 7th
Overview of slide
O 1.probability theory
O 2.example
O 3. implication of probability theory in
decision making
O 4.decision making under uncertainity
Probability theory
Features
outcome of a given trial cannot be
predicted with certainty
Concerned with random phenomena
Example
O life expectancy for persons of a certain
age
O genetic disease occurring in a child of
parents having a known genetic makeup
Implication of probability
theory in decision makingO Expected monetary value criterion or
expected value criterion
O Expected oppurtunity loss criterion
O Expected profit with perfect information
O Marginal analysis approach
Expected monetary value
O Sum of product of pay-off values of each
strategy with assigned probabilities
EMV :payoff* probabilities
Expected profit with perfect information[EPPI]
O Complete information about future regards
O Highest profit can be obtained by
overcoming uncertainities
Marginal analysis approach
O Used when no. of alternatives are availiable
O It is made to avoid situation of creating pay off table and loss table
assumption:expected marginal
profit>=expected maginal loss
Where,expected marginal profit=probability of selling one additional unit*marginal profit
Expected marginal loss=probability of not selling one additional unit
Decision making under uncertainity
O Cannot precisely estimate successs or failure of
product
O Outcome is unknown.
Maximax or minimaxcriterion
Maximin or minimaxcriterion
Equally likely decision criterion
Criterion or realism
Criterion or regret
Workout example
Prduct
appearance
full Partial Minimal
Good 8 70 50
Fair 20 45 40
Poor -25 -10 0
Maximum 50 70 50
Solution
A)Under maximax criterion the company
should follow partial product line as it has
maximum value of rs.70000.
b)Under maximum criterion company should
follow minimal product line as it has
maximum 0.
Equal likelihood:probality=1/3
Where,no.of states=3
Solution of equal likelihood
Prob
abilit
y
Prod
uct
appe
aran
ce
Prod
uct
line
Full Parti
al
Mini
mal
1/3 Good 8 70 50
1/3 Fair 50 45 40
1/3 Poor -25 -10 0
EMV 11 35 30
O Under likelihood
criterion company
should follow partial
product line as it
has maximum
expexted value of
rs.35000
Any question????????