ADDIS ABABA UNIVERSITY

COLLEGE OF BUSINESS & ECONOMICS

DEPARTMANT OF MANAGEMENT
MBA PROGRAMME

Module: Statistical Decision Theory

Course No: MGMT 611
ECTS: 7
Instructor: Dr. Yitbarek Takele Bayiley (Associate Professor)
Academic Year: 2018/19; Semester I

Course Introduction
A decision maker in business and industry comes across the problems of complex decision making
situations. An understanding of the applicability of quantitative methods to decision-making is of
fundamental importance to Managers. Decision analysis models provide an analytical and
systematic approach to depict the expected results. The subject provides a-framework and
methodology for rational decision making when the outcomes are uncertain using various decision
science models.

Learning objectives:
1. Understand and use the decision analysis models under certainty, risk and uncertainty,
2. Use of theory of games in decision making,
3. Solve any multi- objective optimization problems by goal programming,
4. Optimize a sequence of interrelated decisions using dynamic programming models,
5. Understand the application of Markov decision processes, and
6. Use of simulation techniques to evaluate and compare the alternatives for solving various types
of decision problems.

Course Outline
1. Decision Analysis
1.1 Decision analysis with decision tables
1.2 Decision under certainty
1.3 Decision under risk
1.4 Decision trees
1.5 Value of perfect information
1.6 Decision under uncertainty
1.7 Bayes' theorem
1.8 Decision making without experimentation
1.9 Decision making with experimentation
1.10 Utility theory

2. Game Theory
2.1 Introduction
Interactive Decision Theory: Decision Theory vs. Game Theory
The Prisoner’s Dilemma
2.2 Gaming and Strategic Decisions

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2.3 Dominant Strategies
2.4 The Nash Equilibrium
2.5 Repeated Games
2.6 Sequential Games
2.7 Threats, Commitments, and Credibility
2.8 Entry Deterrence
2.9 Bargaining Strategy
2.10 Game Theory and Auction Strategy

3. Multi Criteria Decision Making

3.1 Introduction
3,2 Goal Programming: Model formulation
3.3 The Analytical Hierarchy Process
3.4 Scoring Models

4. Sensitivity Analysis: An Applied Approach

4.1 A Graphical Introduction to Sensitivity Analysis
4.2 The Computer and Sensitivity Analysis
4.3 Managerial Use of Shadow Prices
4.4 What happens to the Optimal z-Value if the Current Basis Is No Longer Optimal?

5. Markov Decision Process ~

5.1 Markov systems
5.2 Transition probabilities
5.3 State probabilities
5.4 Steady state
5.5 Managerial applications

6. Simulation
6.1 The general nature of simulation
6.2 Types of Simulation
6.3 Simulation example

Evaluation
1. Assignment 15%
2. Case analysis 10%
3. First test 15%
4. Final test 60%

References /
1. Hillier and Lieberman, Introduction to Operations Research, Mc-Graw Hill, 2010
2. Clemen, T.R : Making Hard Decisions: Introduction to Decision Analysis 3rded duxbury
Press, Pacific Grove, CA,2006.

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3. Goodwin and Wright: Decision Analysis for Management Judgement ,3rded, Wiley, New
York ,2004 .
4. Hillier and Hillier; Introduction to Management Science, 4thed, Mc Graw Hill, 2010
5. Turban and Meredith: Management Science, Irwin
6. Stevenson and Ozgur :lntroduction to Management Science, Mc Graw Hill ,2008
7. Kros : Spreadsheet Modeling for Business Decisions, Mc Graw Hill, 2007
8. Anderson et aI, Management Science.