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Questions and Answers
What does the Maximax Criterion focus on?
What is the main goal of the Minimax Regret Criterion?
What are the Minimax Regret Criterion steps?
In which economic conditions does the investor experience a maximum payoff of P170,000?
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What is the focus of the Equal Likelihood Criterion?
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What is essential for a decision alternative to be selected based on the Hurwicz Criterion?
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What do states of nature represent in decision making?
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Which criterion is used when consequences cannot be forecast with certainty in decision making?
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What is the purpose of decision alternatives in decision theory?
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What are payoff analyses used for in decision making?
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In decision making, what is the role of the decision maker?
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Which criterion emphasizes minimizing the maximum regret in decision making?
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Which criterion involves selecting the maximum payoff under each state of nature and subtracting all other payoffs from these amounts?
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In the Minimax Regret Criterion, which option has the least regret in poor conditions?
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According to the provided text, which decision criterion assumes the decision maker is neither totally optimistic nor totally pessimistic?
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What is the principle underlying the Hurwicz criterion?
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If a decision maker selects the maximum payoff under each state of nature, which criterion is being used?
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In the context of States of Nature and Payoff Analysis, what does the Minimax Regret Criterion focus on?
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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.
