Documente Academic
Documente Profesional
Documente Cultură
c
CONTENTS
m Decision Theory ± Process
m Decision Rules
m Bayesian Rule
à Order for this book can be placed only once in a year.
For this problem, since the annual demand varies between 18 and
23 copies, there are six possible events and course of actions.
Copies Possible
demanded strategies
E1:18 A1:18
E2:19 A2:19
E3:20 A3:20
E4:21 A4:21
E5:22 A5:22
E6:23 A6:23
Developing Pay-off And Regret Tables
´ hen DQ :
´ P = 100Q ± 80 Q
= 20 Q
It shows bookseller getting profit of Rs. 20 on the sale of each
quantity
´ ë
´
´ P = 100 D + 30 (Q- D) ± 80 Q
P = 100D + 30 Q- 30 D- 80 Q
P = 70 D- 50 Q
HERE,
P= total revenue obtained from selling D copies + revenue
from the unsold copies ± total cost of buying Q copies.
Pay-off Table
à
à à
A4:21 A4:22 A4:23
E1: 18 360 310 260 210 160 110
E2: 19 360 380 330 280 230 180
E3: 20 360 380 400 350 300 250
E4: 21 360 380 400 420 370 320
E5: 22 360 380 400 420 440 390
E6: 23 360 380 400 420 440 460
Opportunity Loss or Regret Table
´ The resultant outcomes of various combinations of the acts and
events can also be expressed in terms of the OPPORTUNITY
LOSS.
à
à à
à à à
E1: 18 0 50 100 150 200 250
E2: 19 20 0 50 100 150 200
E3: 20 40 20 0 50 100 150
E4: 21 60 40 20 0 50 100
E5: 22 80 60 40 20 0 50
E6: 23 100 80 60 40 20 0
Decision Rules
´ The Pay-off matrix or Regret matrix serves adequate
representation of business decision situations, but all types of
decisions cannot be taken through them.
v. Savage Principle
Laplace Principle
´ Under this all the events are treated equally probable .
´ ë
á
à
à à
à à à
E1: 18 360 310 260 210 160 110
E2: 19 360 380 330 280 230 180
E3: 20 360 380 400 350 300 250
E4: 21 360 380 400 420 370 320
E5: 22 360 380 400 420 440 390
E6: 23 360 380 400 420 440 460
Maximax or Minimin Principle
´ Adopted by Optimists¶ Decision Maker
ë
´ Choose
´ Among the Maximum Pay-off, Choose the Maximum
Value.
´ The Optimists always desires a chance for the
maximum pay-off in the decision matrix.
á
à
à à
à à à
E1: 18 360 310 260 210 160 110
E2: 19 360 380 330 280 230 180
E3: 20 360 380 400 350 300 250
E4: 21 360 380 400 420 370 320
E5: 22 360 380 400 420 440 390
E6: 23 360 380 400 420 440 460
´ ë
à
à à
à à à
Maximu
m Pay-off
(Pi)* 1 3 1 0 1 44 3
Maximu
m Pay
ff
´ ë
´ After multiplying all the pay off, add these for each actions.
´ EPj = (pi)(aij)
EXPECTED PAY-OFF (CALCULATION):
´ A1: 0.05 360+0.10 360+0.30 360+0.40 360+0.10 360+0.05 360 =
360
´ A2: 0.05 310+0.10 380+0.30 380+0.40 380+0.10 380+0.05 380 =
376.5
´ A3: 0.05 260+0.10 330+0.30 400+0.40 400+0.10 400+0.05 400 =
386
´ A4: 0.05 210+0.10 280+0.30 350+0.40 420+0.10 420+0.05 420 =
374.5
´ A5: 0.05 160+0.10 230+0.30 300+0.40 370+0.10 440+0.05 440 =
375
´ A6: 0.05 360+0.10 180+0.30 250+0.40 320+0.10 390+0.05 460 =
288.5
According to this Principle, A3 strategy will be chosen as it gives
the highest expected pay ±off.
EXPECTED REGRET (CALCULATION):
Probabi à
à à
à à à
lity Pi
e ret
A1 Small 40
A2 Medium 60
A3 Large 100
Demand would be either "" or . The return from the project will obviously
depend on " ! " and " "
#. The payoffs in thousands(rupees)
expected under the event action combinations, together with the estimated
probabilities of the likely demand are given here
%%# 6
The marketing research firm has asked for U
$$ as the fee
for undertaking the study. How should the construction company
proceed??
PRIOR Analysis:
Calculation Of Expected Pay-off
Best strategy
% 6
%# à à
à
E1: Vigh 0.4 1800 2200 4200
E2: Low 0.6 1000 600 -1200
Expected pay-off 1320 1240 960
´ Expected Pay-Off for A1 = 1800 0.4 + 1000 0.6 = 1320
´ Expected Pay-Off for A2 = 2200 0.4 + 600 0.6 = 1240
´ Expected Pay-Off for A3 = 4200 0.4 - 4200 0.6 = 960
= Expected Pay-Off...
= Expected Pay-Off of Perfect Information...
= Expected Value of Perfect Information...
Posterior Analysis
´ Revised decision of the company if it engages the marketing
research firm.
.
Using the prior and conditional probability, we determine the total
probability that the research report will be favorable or unfavorable
6
&
&- %# & . %#
E1 : Vigh 0.9 0.1
E2 : Low 0.2 0.8
Similarly,
P(I2) = P(E1 ŀ I2) + P(E2 ŀ I2)
± P(I2) = P(E1) P(I2/E1) + P(E2) P(I2/E2)
Substituting all values, we get
P(I1) = 0.4 0.1+0.6 0.80
= 0.04+0.48=0.52
Calculation Of Posterior Probabilities For The Events
E1 And E2 Under The Conditions
The expected pay off of the act A1 is largest : small sized shopping
complex
´ Favorable market research report is obtained
´ Since there is likelihood of 0.48 for the report for the report to
be favorable, and 0.52 for it to be otherwise, we can get the
expected pay off value as shown below:
##
" à
I1: Favorable 0.48 2,850 1,368
Report
I2: Unfavorable 0.52 1,061.52 552
Report
Expected Pay Off 1,920
´ In view of the fact that the company would have to incur extra
sample information(EVSI)
´ EVSI = Expected Payoff with Sample Information ±
given here that the marketing research firm has asked a fee of
EI=(EVSI/EVPI) 100
´ In our example,
Cost and revenues have been estimated for all possible outcomes and
the net present value of each is as follows:
2 0.8 100
120 success
test
3
drill success
100
1 0.2
45
15
-50
cecision node
Chance node
Evaluation of Decision Node 1:
Total (20)
3. Sell 1.0 45 45
- 65 -50
-40
70 100
48 120 70
0.55
53.5 53.5
0.2 100
15 20
45
15
-50
e may observe that the expected value of the alternative of
carrying out a test is Rs. 53.5 millions ,which is the highest of the