DECISION THEORY

There are many types of decision making from which some are as
follows :-
A. Under Certainty
B. Under Uncertainty
C. Under Risk
D. Under Conflict
A. Under Certainty:-
There are different criteria available for this situation & the right
decision is taken depending on companys policy and judgement of decision maker.The different
criterias are as follows

1. Maximum Criteria
2. Maximin Criteria
3. Minimin Criteria
4. Minimax Criteria (Regret)
5. Laplace Criteria
6. Hurwicz Criteria (Sigma=0.7)

2.Under Risk
1. EMV (Expected Monetary Value)
2. EOL (Expected Opportunity Loss)
3. EPPI (Expected Perfect Information)
4. EVPI (Expected Value Of Perfect Info)
To Calculate
1.EMV(Expected Monetary Value)
A. EMV is calculated as
(A1*Probability)+( A2*Probability)+( A3*Probability)..and so on.
B. After calculating EMV maximum profit/value is selected.

2. EOL (Expected Opportunity Loss)

In this regret table is compulsory.
.For regret table instance of nature the maximum value is selected from column wise.
.Less from all the numbers column wise.
.Then find EOL
(A1*Probability)+ (A2*Probability).
.In this minimum loss is to be selected.

3. EVPI(Expected Value Of Perfect Info)

.For EVPI find EMV is calculated as (A1*Probability)+(A2*Probability)
.Maximum EMV is to be selected
.EVPI=EPPI-Maximum value of EMV

4. EPPI(Expected Perfect Information)

.EPPI is to be calculated as
(P1*Maximum pay off under S1)+ (P2*Maximum pay off under S2)+
(P3*Maximum pay off under S3)
Decision Tree

A decision tree is graphical presentation of a decision process involved in multiple

stages.It indicates all the courses of action, states of nature with associated probabilities
and the conditional payoff of a decision problem.
A decision note is represented by a square and state of nature mode is represented by a
circle.
Usually the decision mode are numbered using capital letters A,B,Cfrom left to right
and states of nature modes as 1,2,3from left to right.
SIMPLEX METHOD
To calculate Simplex Method
Step 1
Convert the LPP in standard form.
Slack Variable
A slack variable represents unutilized capacity of a resource slack variable represented by (S1,
S2, S3.)

Step 2
Write in simplex table & substitute all values.

Step 3
zj
The row in simplex table which represents are the decrease in one unit of that variable is
bought in solution.
Calculation Of zj
Zj=Ec.b
=Ec.x1
=Ec.x2
=Ec.S1
=Ec.S2
CJ Row
The row in simplex table which represents profit/contribution of each variable in
objective function.

Calculation Of delta j
The row in simplex table which represents the net increase in objective function. If
one unit of that variable is brought on solution hence positive value of delta indicate
gain/increase in profit & negative value of delta indicate decrease in profit or loss.

Key Column
The variable which have maximum delta j is called incoming variable for next table. In
the next simplex table this variable will enter the basis and it will replace one of the existing
basis variable.

Key Row (Outgoing Variable)

The variable which goes out of the solution in next table. It is a replace by incoming
variable in basis. To find key row first we find replacement ratio for all the basis variable & select
minimum replacement ratio.
THANK YOU