INTRODUCTION TO DECISION MAKING AND DECISION UNDER CERTAINTY

INTRODUCTION TO DECISION THEORY AND DECISION - MAKING UNDER CERTAINTYShri Sad Vidya Mandal Institute of technology, Bharuch

Subject : Operations Research

Enrollment no : 130450119043 130450119047

Guided by : Ass. Professor and HOD, Mr. S. J. Thanki SVMIT, Bharuch

CONTENT

Introduction to decision theoryDecision making under certainty

INTRODUCTION TO DECISION THEORY

The success or failure that an individual or organization experiences, depends to a large extent, on the ability of making acceptable decisions on time.

To arrive at such a decision, a decision maker needs to enumerate feasible and viable courses of action (alternatives or strategies), the projection of consequences associated with each course of action, and a measure of effectiveness (or an objective) to identify the best course of action.

INTRODUCTION TO DECISION THEORY

Decision Theory is both descriptive and prescriptive business modeling approach to classify the degree of knowledge and compare expected outcomes due to several courses of action.

The degree of knowledge is divided into four categories :CertaintyUncertaintyRiskIgnorance

INTRODUCTION TO DECISION THEORY

In day to day life everyone is taking decision under different scenarios as discussed below :

Decision making under certainty If there is complete certainty about future, it is possible to take the best decision as there is only one state of nature exist for each alternatives. This decision environment is called decision making under conditions of certainty.

INTRODUCTION TO DECISION THEORY Decision making under uncertainty If there is more than one states of nature exist, the uncertainty about the event to happen increase and hence the decision gets affected as there is insufficient knowledge about the probabilities of any event to happen. This decision environment is called decision making under conditions of uncertainty.

INTRODUCTION TO DECISION THEORY Decision making under risk In the above condition, if the probabilities of event to happen is known, then calculated risk is taken for each states of nature which is existing and appropriate decision is taken. This decision environment is called decision making conditions of risk.

IgnoranceUncertaintyRiskCertainty

Increasing Knowledge

DECISION MAKING UNDER CERTAINTY

In this decision making environment, decision maker has complete knowledge (perfect information) of outcome due to each decision alternative (course of action).

Example of decision under certainty :

A manufacturer has two different kinds of machines M1 and M2. He has received an order which can processed either on M1 or on M2.

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The following data is available :

Which of the two machines will you choose to do the job if the order quantity is 1000 numbers?MachineM1M2Set up time (min)90120Tooling up costRs.600Rs.1800Machining time per piece (min)124Machine cost per hr.Rs.40Rs.90

Answer

Lets first we consider two machines M1 and M2 which is shown in figure.

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