Decision Analysis free essay sample

Decision analysis is concerned with establishing systematic procedures for making decisions under uncertainty. Knowledge of decision analysis should help analyze a problem in a complicated and uncertain setting, to develop alternatives, and to identify possible outcomes. The decision maker then selects the alternative that best meets his or her objectives and psychological desires. Decision analysis is important because it provides decision makers with a rational way of making a selection. It does not guarantee an optimal decision since the problems are characterized by at least some uncertainty. However, it can indicate which alternative is most suited to the decision maker’s own philosophy, be it optimistic, pessimistic, or somewhere in between. 3 – Decision Analysis 2 1 Applications of decision analysis are widespread such as selection of investment portfolios oil and gas exploration (to drill or not to drill) contracting (to bid or not to bid) agriculture (which crops to plant) manufacturing (which products to produce, how much to produce, which technology to invest) marketing (new products, promotion strategies), so on. Yet, until recently, decision analytic research has all but ignored structuring, concentrating instead on questions of modeling and elicitation. As a result, structuring was, and to some extent still is, considered the ‘art’ part of decision analysis. This paper examines some attempts to turn this art into a science. Trees are the most common decision analytic structures. Decision trees, for example, represent the sequential aspects of a decision problem (see Raiffa 1968; Brown et al. 1974). Other examples are goal trees for the representations of values (Keeney and Raiffa 1976) and event trees for the representation f inferential problem aspects (Kelly and Barclay 1973). In fact, trees so much dominate decision analytic structures that structuring is often considered synonymous to building a tree.