Decision Making in Operations Management

Chapter 13 Decision Analysis
Problem Formulation Decision Making without Probabilities Decision Making with Probabilities Risk Analysis and Sensitivity Analysis Decision Analysis with Sample Information Computing Branch Probabilities
2005 Thomson/South-Western Slide 1
Problem Formulation
A decision problem is characterized by decision alternatives, states of nature, and resulting payoffs. The decision alternatives are the different possible strategies the decision maker can employ. The states of nature refer to future events, not under the control of the decision maker, which may occur. States of nature should be defined so that they are mutually exclusive and collectively exhaustive.
Slide 2
2005 Thomson/South-Western
Influence Diagrams
An influence diagram is a graphical device showing the relationships among the decisions, the chance events, and the consequences. Squares or rectangles depict decision nodes. Circles or ovals depict chance nodes. Diamonds depict consequence nodes. Lines or arcs connecting the nodes show the direction of influence.
Slide 3
Payoff Tables
The consequence resulting from a specific combination of a decision alternative and a state of nature is a payoff. A table showing payoffs for all combinations of decision alternatives and states of nature is a payoff table. Payoffs can be expressed in terms of profit, cost, time, distance or any other appropriate measure.
Slide 4
Decision Trees
A decision tree is a chronological representation of the decision problem. Each decision tree has two types of nodes; round nodes correspond to the states of nature while square nodes correspond to the decision alternatives.
Slide 5
The branches leaving each round node represent the different states of nature while the branches leaving each square node represent the different decision alternatives. At the end of each limb of a tree are the payoffs attained from the series of branches making up that limb.
Decision Making without Probabilities
Three commonly used criteria for decision making when probability information regarding the likelihood of the states of nature is unavailable are: the optimistic approach the conservative approach the minimax regret approach.
Slide 7
Optimistic Approach
The optimistic approach would be used by an optimistic decision maker. The decision with the largest possible payoff is chosen. If the payoff table was in terms of costs, the decision with the lowest cost would be chosen.
Slide 8
Conservative Approach

The conservative approach would be used by a conservative decision maker. For each decision the minimum payoff is listed and then the decision corresponding to the maximum of these minimum payoffs is selected. (Hence, the minimum possible payoff is maximized.) If the payoff was in terms of costs, the maximum costs would be determined for each decision and then the decision corresponding to the minimum of these maximum costs is selected. (Hence, the maximum possible cost is minimized.)
Slide 9
Minimax Regret Approach
The minimax regret approach requires the construction of a regret table or an opportunity loss table. This is done by calculating for each state of nature the difference between each payoff and the largest payoff for that state of nature. Then, using this regret table, the maximum regret for each possible decision is listed. The decision chosen is the one corresponding to the minimum of the maximum regrets.
Slide 10
Example
Consider the following problem with three decision alternatives and three states of nature with the following payoff table representing profits: States of Nature s1 s2 s3 d1 Decisions d2 d3 4 0 1 4 3 5 -2 -1 -3
Slide 11
Example: Optimistic Approach

An optimistic decision maker would use the optimistic (maximax) approach. We choose the decision that has the largest single value in the payoff table. Decision d1 d2 d3 Maximum Payoff 4 Maximax payoff 3 5
Maximax decision
Slide 12
Example: Optimistic Approach
Solution Spreadsheet
A B PAYOFF TABLE Decision Alternative d1 d2 d3 C D E F
1 2 3 4 5 6 7 8 9
State of Nature s1 s2 s3 4 4 -2 0 3 -1 1 5 -3 Best Payoff
Maximum Payoff 4 3 5 5
Recommended Decision
d3
Slide 13
Example: Conservative Approach

A conservative decision maker would use the conservative (maximin) approach. List the minimum payoff for each decision. Choose the decision with the maximum of these minimum payoffs. Decision d1 d2 d3 Minimum Payoff -2 -1 -3
Maximin decision
Maximin payoff
Slide 14
Example: Conservative Approach
E F
A B C D 1 PAYOFF TABLE 2 3 Decision State of Nature 4 Alternative s1 s2 s3 5 d1 4 4 -2 6 d2 0 3 -1 7 d3 1 5 -3 8 9 Best Payoff
Minimum Payoff -2 -1 -3 -1
Recommended Decision d2
Slide 15
Example: Minimax Regret Approach

For the minimax regret approach, first compute a regret table by subtracting each payoff in a column from the largest payoff in that column. In this example, in the first column subtract 4, 0, and 1 from 4; etc. The resulting regret table is: s1 s2 s3
d1 d2 d3
0 4 3
1 2 0
1 0 2
Slide 16

For each decision list the maximum regret. Choose the decision with the minimum of these values. Maximum Decision Regret d1 1 d2 4 d3 3
Minimax decision
Minimax regret
Slide 17
A B C D PAYOFF TABLE Decision State of Nature Alternative s1 s2 s3 d1 4 4 -2 d2 0 3 -1 d3 1 5 -3 E F
1 2 3 4 5 6 7 8 OPPORTUNITY LOSS TABLE 9 Decision State of Nature 10 Alternative s1 s2 s3 11 d1 0 1 1 12 d2 4 2 0 13 d3 3 0 2 14 Minimax Regret Value
Maximum Regret 1 4 3 1
Recommended Decision d1
Slide 18
Decision Making with Probabilities
Expected Value Approach If probabilistic information regarding the states of nature is available, one may use the expected value (EV) approach. Here the expected return for each decision is calculated by summing the products of the payoff under each state of nature and the probability of the respective state of nature occurring. The decision yielding the best expected return is chosen.
Slide 19
Expected Value of a Decision Alternative

The expected value of a decision alternative is the sum of weighted payoffs for the decision alternative. The expected value (EV) of decision alternative di is defined as:
EV( d i ) P( s j )Vij
j 1
where:
N = the number of states of nature P(sj ) = the probability of state of nature sj Vij = the payoff corresponding to decision alternative di and state of nature sj
Slide 20
Example: Burger Prince

Burger Prince Restaurant is considering opening a new restaurant on Main Street. It has three different models, each with a different seating capacity. Burger Prince estimates that the average number of customers per hour will be 80, 100, or 120. The payoff table for the three models is on the next slide.
Slide 21
Payoff Table
Average Number of Customers Per Hour s1 = 80 s2 = 100 s3 = 120

Model A Model B Model C $10,000 $ 8,000 $ 6,000 $15,000 $18,000 $16,000 $14,000 $12,000 $21,000
Slide 22
Expected Value Approach
Calculate the expected value for each decision. The decision tree on the next slide can assist in this calculation. Here d1, d2, d3 represent the decision alternatives of models A, B, C, and s1, s2, s3 represent the states of nature of 80, 100, and 120.
Slide 23
Decision Tree
Payoffs 10,000 15,000 14,000 8,000
d1 1
s1 s2 s3 s1
.4
.2
.4 .4
d2
d3
s2 s3 s1 s2 s3
.2
.4 .4 .2
18,000
12,000 6,000 16,000 21,000
Slide 24
.4
Expected Value for Each Decision
Model A
1
d1
EMV = .4(10,000) + .2(15,000) + .4(14,000) = $12,600
Model B d2
EMV = .4(8,000) + .2(18,000) + .4(12,000) = $11,600
Model C
d3 EMV = .4(6,000) + .2(16,000) + .4(21,000) 4

= $14,000
Choose the model with largest EV, Model C.

Expected Value Approach
E F
A B C D 1 PAYOFF TABLE 2 3 Decision State of Nature 4 Alternative s1 = 80 s2 = 100 s3 = 120 5 d1 = Model A 10,000 15,000 14,000 6 d2 = Model B 8,000 18,000 12,000 7 d3 = Model C 6,000 16,000 21,000 8 Probability 0.4 0.2 0.4 9 Maximum Expected Value
Expected Value 12600 11600 14000 14000
d3 = Model C
Slide 26
Expected Value of Perfect Information
Frequently information is available which can improve the probability estimates for the states of nature. The expected value of perfect information (EVPI) is the increase in the expected profit that would result if one knew with certainty which state of nature would occur. The EVPI provides an upper bound on the expected value of any sample or survey information.
Slide 27
EVPI Calculation Step 1: Determine the optimal return corresponding to each state of nature. Step 2: Compute the expected value of these optimal returns. Step 3: Subtract the EV of the optimal decision from the amount determined in step (2).
Slide 28

Calculate the expected value for the optimum payoff for each state of nature and subtract the EV of the optimal decision. EVPI= .4(10,000) + .2(18,000) + .4(21,000) - 14,000 = $2,000
Slide 29
Spreadsheet
F
A B C D E 1 PAYOFF TABLE 2 3 Decision State of Nature Expected 4 Alternative s1 = 80 s2 = 100 s3 = 120 Value 5 d1 = Model A 10,000 15,000 14,000 12600 6 d2 = Model B 8,000 18,000 12,000 11600 7 d3 = Model C 6,000 16,000 21,000 14000 8 Probability 0.4 0.2 0.4 9 Maximum Expected Value 14000 10 11 Maximum Payoff EVwPI 12 10,000 18,000 21,000 16000
d3 = Model C
EVPI 2000
Slide 30
Risk Analysis
Risk analysis helps the decision maker recognize the difference between: the expected value of a decision alternative, and the payoff that might actually occur The risk profile for a decision alternative shows the possible payoffs for the decision alternative along with their associated probabilities.
Slide 31
Risk Profile
Model C Decision Alternative

.50
Probability .40 .30 .20 .10 5 10 15 20 25
Slide 32
Sensitivity Analysis
Sensitivity analysis can be used to determine how changes to the following inputs affect the recommended decision alternative: probabilities for the states of nature values of the payoffs If a small change in the value of one of the inputs causes a change in the recommended decision alternative, extra effort and care should be taken in estimating the input value.
Slide 33
Bayes Theorem and Posterior Probabilities

Knowledge of sample (survey) information can be used to revise the probability estimates for the states of nature. Prior to obtaining this information, the probability estimates for the states of nature are called prior probabilities. With knowledge of conditional probabilities for the outcomes or indicators of the sample or survey information, these prior probabilities can be revised by employing Bayes' Theorem. The outcomes of this analysis are called posterior probabilities or branch probabilities for decision trees.
Slide 34
Computing Branch Probabilities
Branch (Posterior) Probabilities Calculation Step 1: For each state of nature, multiply the prior probability by its conditional probability for the indicator -- this gives the joint probabilities for the states and indicator.
Slide 35
Computing Branch Probabilities
Branch (Posterior) Probabilities Calculation Step 2: Sum these joint probabilities over all states -- this gives the marginal probability for the indicator. Step 3: For each state, divide its joint probability by the marginal probability for the indicator -- this gives the posterior probability distribution.
Slide 36
Expected Value of Sample Information
The expected value of sample information (EVSI) is the additional expected profit possible through knowledge of the sample or survey information.
Slide 37
EVSI Calculation Step 1: Determine the optimal decision and its expected return for the possible outcomes of the sample using the posterior probabilities for the states of nature. Step 2: Compute the expected value of these optimal returns. Step 3: Subtract the EV of the optimal decision obtained without using the sample information from the amount determined in step (2).
Slide 38
Efficiency of Sample Information

Efficiency of sample information is the ratio of EVSI to EVPI. As the EVPI provides an upper bound for the EVSI, efficiency is always a number between 0 and 1.
Slide 39
Sample Information
Burger Prince must decide whether or not to purchase a marketing survey from Stanton Marketing for $1,000. The results of the survey are "favorable" or "unfavorable". The conditional probabilities are: P(favorable | 80 customers per hour) = .2 P(favorable | 100 customers per hour) = .5 P(favorable | 120 customers per hour) = .9 Should Burger Prince have the survey performed by Stanton Marketing?
Slide 40
Influence Diagram
Decision Chance Consequence
Market Survey Results
Avg. Number of Customers Per Hour
Market Survey
Restaurant Size
Profit
Slide 41
Posterior Probabilities
Favorable
State 80 100 120
Prior .4 .2 .4
Conditional Joint .2 .08 .5 .10 .9 .36 Total .54

P(favorable) = .54
Posterior .148 .185 .667 1.000
Slide 42
Unfavorable
State 80 100 120
Prior .4 .2 .4
Conditional .8 .5 .1 Total
Joint .32 .10 .04 .46
Posterior .696 .217 .087 1.000
P(unfavorable) = .46
Slide 43
A B Market Research Favorable Prior State of Nature Probabilities s1 = 80 0.4 s2 = 100 0.2 s3 = 120 0.4 C D Joint Probabilities 0.08 0.10 0.36 0.54 E Posterior Probabilities 0.148 0.185 0.667
1 2 Conditional 3 Probabilities 4 0.2 5 0.5 6 0.9 7 P(Favorable) = 8 9 Market Research Unfavorable 10 Prior Conditional 11 State of Nature Probabilities Probabilities 12 s1 = 80 0.4 0.8 13 s2 = 100 0.2 0.5 14 s3 = 120 0.4 0.1 15 P(Favorable) =
Joint Probabilities 0.32 0.10 0.04 0.46
Posterior Probabilities 0.696 0.217 0.087
Slide 44
Decision Tree
Top Half
s1 (.148) s2 (.185) $15,000 s3 (.667)
$10,000
d1 d2 d3
$14,000 s1 (.148) $8,000 s2 (.185) $18,000

s3 (.667) s1 (.148)
I1
(.54)
1
s2 (.185) s3 (.667)
$12,000 $6,000 $16,000 $21,000

Slide 45
Decision Tree
Bottom Half
1
I2 (.46)
d1 d2 d3
s1 (.696) $10,000 s2 (.217) $15,000 s3 (.087)
s1 (.696) s2 (.217) s3 (.087)
$14,000 $8,000 $18,000

$12,000 $6,000 $21,000
s1 (.696) s2 (.217) s3 (.087) $16,000
Slide 46
Decision Tree
d1 d2 d3
4
$17,855 I1 (.54)
1 2
EMV = .148(10,000) + .185(15,000) + .667(14,000) = $13,593 EMV = .148 (8,000) + .185(18,000) + .667(12,000) = $12,518
EMV = .148(6,000) + .185(16,000) +.667(21,000) = $17,855
5
6 7 8 9
I2 (.46)
d1
3
EMV = .696(10,000) + .217(15,000) +.087(14,000)= $11,433

EMV = .696(8,000) + .217(18,000) + .087(12,000) = $10,554 EMV = .696(6,000) + .217(16,000) +.087(21,000) = $9,475
Slide 47
d2 d3
$11,433

If the outcome of the survey is "favorable, choose Model C. If it is unfavorable, choose Model A. EVSI = .54($17,855) + .46($11,433) - $14,000 = $900.88 Since this is less than the cost of the survey, the survey should not be purchased.
Slide 48
Efficiency of Sample Information

The efficiency of the survey: EVSI/EVPI = ($900.88)/($2000) = .4504
Slide 49
Bayes Decision Rule: Using the best available estimates of the probabilities of the respective states of nature (currently the prior probabilities), calculate the expected value of the payoff for each of the possible actions. Choose the action with the maximum expected payoff.
Bayes theory Si: State of Nature (i = 1 ~ n) P(Si): Prior Probability Ij: Professional Information (Experiment)( j = 1 ~ n)
P(Ij | Si): Conditional Probability
P(Ij Si) = P(Si Ij): Joint Probability

P(Si | Ij): Posterior Probability P(Si I j ) P(I j | Si )P(Si ) P(Si | Ij) n P( I j ) P(I j | Si )P(Si )
i 1
Slide 51
Home Work
Problem Problem Due
13-10 13-21
Date: Nov 11, 2008
Slide 52

Decision Making in Operations Management

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Decision Making in Operations Management

Hochgeladen von

Copyright:

Verfügbare Formate

Chapter 13 Decision Analysis

2005 Thomson/South-Western Slide 1

Decision Making without Probabilities

Minimax Regret Approach

Example: Optimistic Approach

Example: Optimistic Approach

State of Nature s1 s2 s3 4 4 -2 0 3 -1 1 5 -3 Best Payoff

Example: Conservative Approach

Example: Conservative Approach

A B C D 1 PAYOFF TABLE 2 3 Decision State of Nature 4 Alternative s1 s2 s3 5 d1 4 4 -2 6 d2 0 3 -1 7 d3 1 5 -3 8 9 Best Payoff

Example: Minimax Regret Approach

Example: Minimax Regret Approach

Example: Minimax Regret Approach

Decision Making with Probabilities

Expected Value of a Decision Alternative

Example: Burger Prince

Average Number of Customers Per Hour s1 = 80 s2 = 100 s3 = 120

Expected Value Approach

Expected Value for Each Decision

EMV = .4(10,000) + .2(15,000) + .4(14,000) = $12,600

EMV = .4(8,000) + .2(18,000) + .4(12,000) = $11,600

d3 EMV = .4(6,000) + .2(16,000) + .4(21,000) 4

Choose the model with largest EV, Model C.

Expected Value Approach

Expected Value 12600 11600 14000 14000

Expected Value of Perfect Information

Expected Value of Perfect Information

Expected Value of Perfect Information

Expected Value of Perfect Information

Model C Decision Alternative

Bayes Theorem and Posterior Probabilities

Computing Branch Probabilities

Computing Branch Probabilities

Expected Value of Sample Information

Expected Value of Sample Information

Efficiency of Sample Information

Decision Chance Consequence

Market Survey Results

Avg. Number of Customers Per Hour

State 80 100 120

Conditional Joint .2 .08 .5 .10 .9 .36 Total .54

Posterior .148 .185 .667 1.000

State 80 100 120

Joint .32 .10 .04 .46

Posterior .696 .217 .087 1.000

Joint Probabilities 0.32 0.10 0.04 0.46

Posterior Probabilities 0.696 0.217 0.087

$14,000 s1 (.148) $8,000 s2 (.185) $18,000

$12,000 $6,000 $16,000 $21,000

s1 (.696) $10,000 s2 (.217) $15,000 s3 (.087)

s1 (.696) s2 (.217) s3 (.087)

$14,000 $8,000 $18,000

s1 (.696) s2 (.217) s3 (.087) $16,000

EMV = .696(10,000) + .217(15,000) +.087(14,000)= $11,433

Expected Value of Sample Information

Efficiency of Sample Information

P(Ij Si) = P(Si Ij): Joint Probability

Date: Nov 11, 2008

Das könnte Ihnen auch gefallen