Decision AnalysisPertemuan 18-20

Matakuliah : A0784 - Strategi Investasi ITTahun : 2009

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Introduction• Two commonly used sets of decision-making methodologies

Decision Theory• Collection of methodologies and principles used

to make single, alternative choice of decisions• Procedural mathematics and statistical are used • Application in IT decision-making is presented

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Decision theory problems/elements1. Alternatives/choices/strategies : • Independent decision variables• Represent alternative action to select2. States of nature :• Independent events assumed to occur in the future• Example : economic recession, depression3. Payoffs :• Dependent parameters assumed to occur give a particular

alternative is selected• Example : profit, cost

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Types of decision environments• Certainty : Knows clearly what alternatives to

choose and the payoff for each choice• Risk : Some information on the payoffs are

available but presented in a probabilistic• Uncertainty : No information about likelihood of

states of nature occurring is available

Decision Theory Model Formulation• Identify and list as rows the alternatives to

choose from• Identify and list as columns the states of nature

that can occur• Identify and list in the appropriate row and

column the payoffs• Formulate the problem/model as payoff table See Table 2-3

Decision-Making Under CertaintyMaximax criteria :1. Select the maximum payoff for each alternative2. Select the alternative of maximum payoffs See Table 4Maximin criteria :1. Select the minimum payoff for each alternative2. Select the alternative of minimum payoffs See Table 5

Decision-Making Under RiskOrigin of probabilities :• The probability of past events or experiments will

follow the same pattern in the future• The probabilities are stable in the process that is

being observed• The sample size is adequate to represent the past

behaviour

Expected Value Criteria• Determined by computing weighted estimate of

payoff for each alternative• Select the alternative with the best payoff. If the

problem has profit or sales payoffs, the best payoff would be the largest expected payoff

• Expected opportunity loss criteria is based on the logic of avoidance of loss or to minimize the loss.

Decision-Making Under Uncertainty• Laplace• Maximin• Maximax• Hurwicz• Minimax