Posted by: carkod on: October 5, 2008
The decision problem
Usually we have to choose an alternative among others, the act of deciding may carry certainty or uncertainty. Decisions are for certain when you´ve got plenty information of what you´ll do, for instance, if we want to buy clothes there´s a lot of shops, cheaper or more expensive, this decision has [...]
Posted by: carkod on: October 5, 2008
Decision criteria
Choosing something is just like a lottery, but to make it less random, we should follow some selection criteria in order to choose among the alternatives helpings us to compare and of course make our decision.
The minimum and maximum criteria
This trick is pretty easy, suitable for pessimistic people. Just take the lowest [...]
Posted by: carkod on: October 5, 2008
Decision tree
Another method to depict the sequence of a decision is the decision tree. Where squares are decisions and circles are states of nature (events). We usually depict two contrary events, connected by branches. Over the braches probabilities of occurrences are written.
Here, “A” means bet, “G” means win and “P” to lose. The [...]
Posted by: carkod on: October 5, 2008
Perfect information
An individual with perfect information knows before the decision that a state of nature is going to happen, the best choice would be the maximum of each state of nature (each row ei), this is usually denoted by Mi. Afterwards, we calculate the expected value, under the name of expected value on [...]
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