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Management Science Decision Theory: Non-Probability Techniques
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Management Science Decision Theory: Non-Probability Techniques

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Questions and Answers

What does the Maximax Criterion focus on?

  • Avoiding regret by minimizing maximum regret
  • Reflecting the maximum of the minimum payoffs
  • Selecting the decision with the maximum of the maximum payoffs (correct)
  • Selecting the decision alternative that maximizes the minimum payoffs
  • What is the main goal of the Minimax Regret Criterion?

  • Minimizing the difference between the investor's choice and the best choice (correct)
  • Maximizing payoffs in both good and poor economic conditions
  • Maximizing the degree of regret
  • Selecting the decision with the maximum of the minimum payoffs
  • What are the Minimax Regret Criterion steps?

  • Selecting the maximum payoff under each state of nature (correct)
  • Choosing the option with the maximum regret
  • Selecting the minimum payoff under each state of nature
  • Selecting the decision alternative that maximizes minimum payoffs
  • In which economic conditions does the investor experience a maximum payoff of P170,000?

    <p>Good economic conditions</p> Signup and view all the answers

    What is the focus of the Equal Likelihood Criterion?

    <p>Minimum of minimum payoffs</p> Signup and view all the answers

    What is essential for a decision alternative to be selected based on the Hurwicz Criterion?

    <p>Applying a coefficient of optimism</p> Signup and view all the answers

    What do states of nature represent in decision making?

    <p>Actual events that may occur in the future</p> Signup and view all the answers

    Which criterion is used when consequences cannot be forecast with certainty in decision making?

    <p>Minimax Regret Criterion</p> Signup and view all the answers

    What is the purpose of decision alternatives in decision theory?

    <p>Present possible actions or acts to choose from</p> Signup and view all the answers

    What are payoff analyses used for in decision making?

    <p>To evaluate the possible alternatives and their consequences</p> Signup and view all the answers

    In decision making, what is the role of the decision maker?

    <p>Determining the optimal course of action among alternatives</p> Signup and view all the answers

    Which criterion emphasizes minimizing the maximum regret in decision making?

    <p>Minimax Regret Criterion</p> Signup and view all the answers

    Which criterion involves selecting the maximum payoff under each state of nature and subtracting all other payoffs from these amounts?

    <p>Minimax Regret Criterion</p> Signup and view all the answers

    In the Minimax Regret Criterion, which option has the least regret in poor conditions?

    <p>Time Deposit</p> Signup and view all the answers

    According to the provided text, which decision criterion assumes the decision maker is neither totally optimistic nor totally pessimistic?

    <p>Hurwicz Criterion</p> Signup and view all the answers

    What is the principle underlying the Hurwicz criterion?

    <p>Balancing optimism and pessimism</p> Signup and view all the answers

    If a decision maker selects the maximum payoff under each state of nature, which criterion is being used?

    <p>Maximax Criterion</p> Signup and view all the answers

    In the context of States of Nature and Payoff Analysis, what does the Minimax Regret Criterion focus on?

    <p>Minimizing the potential for regret</p> Signup and view all the answers

    Study Notes

    Decision Making Criteria

    • The Maximax Criterion focuses on selecting the alternative with the highest possible payoff in the best possible state of nature.
    • The main goal of the Minimax Regret Criterion is to minimize the maximum regret or opportunity loss.

    Minimax Regret Criterion Steps

    • Identify all possible states of nature
    • Determine the payoff for each alternative under each state of nature
    • Calculate the opportunity loss or regret for each alternative under each state of nature
    • Select the alternative with the minimum maximum regret

    Economic Conditions and Payoffs

    • An investor experiences a maximum payoff of P170,000 under certain economic conditions.

    Equal Likelihood Criterion

    • The Equal Likelihood Criterion focuses on selecting the alternative with the highest average payoff, assuming all states of nature are equally likely.

    Hurwicz Criterion

    • For a decision alternative to be selected based on the Hurwicz Criterion, it must have a weighted average of the best and worst possible outcomes.
    • The Hurwicz Criterion assumes the decision maker is neither totally optimistic nor totally pessimistic.
    • The principle underlying the Hurwicz Criterion is that the decision maker has a optimism-pessimism index that reflects their attitude towards risk.

    States of Nature

    • States of nature represent all possible future outcomes or conditions that may occur.

    Uncertainty in Decision Making

    • When consequences cannot be forecast with certainty, the Minimax Regret Criterion is used.

    Decision Alternatives and Payoff Analysis

    • Decision alternatives are different options available to the decision maker.
    • The purpose of decision alternatives is to choose the best option based on the expected outcomes.
    • Payoff analyses are used to evaluate the outcomes of each decision alternative under different states of nature.

    Decision Maker's Role

    • The decision maker's role is to choose the best decision alternative based on the expected outcomes.

    Minimizing Regret

    • The Minimax Regret Criterion emphasizes minimizing the maximum regret in decision making.
    • In the Minimax Regret Criterion, the option with the least regret in poor conditions is selected.

    Criterion Focus

    • The Minimax Regret Criterion focuses on the maximum opportunity loss or regret under each state of nature.
    • If a decision maker selects the maximum payoff under each state of nature, the Maximax Criterion is being used.

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    Description

    Explore decision theory concepts in management science focusing on non-probability techniques. Learn how to determine the optimal course of action when faced with uncertain consequences and multiple alternatives. This quiz covers elements like possible actions, states of nature, and consequences in a business problem scenario.

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