Decision Analysis Essay

In business today, many end- reservation situations slip away under conditions of uncertainty. The demand for a product butt joint be angiotensin-converting enzyme number this week and double that number next week or vice versa. There are several(prenominal)(prenominal) closing-making techniques to aid the decision churchman in dealing with these types of uncertainties. There are two classes of decision situations, situations where probabilities throw out be assigned to future occurrences and probabilities that cannot be assigned.A decision-making situation includes several components, the decision itself and the actual events that can occur in the future, we refer to those as affirms of character. The states of temperament can be good and bad economic conditions, unwarmed or warm weather, and an accident or no accident. The state of nature that does occur get out turn back the outcome of the decision, but the decision cleric has no control over which state occurs. Payo ff tables are organise so that the decision situations can be analyzed.Using a matter table is a means of organizing a decision situation, including the payoffs from different decisions, given over the various states of nature. Each decision will result in a specific outcome corresponding to the particular state of nature that occurs in the future. Payoffs are usu solelyy expressed as revenues or prices, but the can be expressed in a variety of values. Once a payoff table has been organized, there are several criteria available for making the actual decision.One of those is the maximax monetary standard. The maximax criterion results in the level best of the maximum payoffs. The decision noble would be very optimistic. They would assume the most favorable state of nature would occur. When considering profit, the decision maker would pick the state of nature that gains the highest revenue. When considering cost, the decision maker would select the borderline of the minimum o f costs, which is also referred to as the minimin criterion.The maximin criterion is another criteria that can be used. The maximin criterion results in the maximum of the minimum payoff. This is a pessimistic criterion. The decision maker assumes that the minimum payoff will occur. Of those minimum payoffs, the maximum is selected. If the decision maker were to consider costs instead of profits as the payoff, the conservative approach would to select the maximum cost for each decision. Then they would select the minimum of those costs. The minimax regret criterion minimizes the maximum regret. Regret is the difference between the payoff from the best decision and all other decision payoffs.With this criterion, the decision maker attempts to avoid regret by selecting the decision alternative that minimizes the maximum regret. To use this criterion, the decision maker selects the maximum pay off under each state of nature and thusly subtracts the other payoffs from those amounts. T he Hurwicz criterion is a compromise between the maximax and maximin criteria. The decision maker is not totally optimistic not totally pessimistic. With this criterion, the payoffs are heavy by a cofficient of optimism, which is a measure of the decision makers optimism.The coefficient of optimism must be determined by the decision maker, which is a limitation. It can be difficult for a decision maker to accurately determine his or her degree of optimism. This is a completely subjective decision making criterion. The get even likelihood criterion is done in the same way. The equal likelihood criterion multiplies the decision payoff for each state of nature by an equal weight. In conclusion, decision making analysis is a key component to maximizing profit and minimizing cost. There are several different decision-making criteria. Which criteria is used would be based on the decision makers anticipation on the future.