fon Decision Theovy

The Success 01 failue that an individual O

O
Ovganization expeiences depends a large extent
On fhe ability Of making acceptable dec1S1on On
time lo a171ve at Such a decisSion tha decISin
maker needs to enumerate allAhu posscble
alternatives toidentity the best cou1se of action

Decision
Decision thusty
thesy is both descauptive and pe sc1prue
busineSS modeliog appioach to classify thu degree
knowledge and COmpa7e expected Outcome
due to Several CouTses of action

of knowledge 1s divided Into 4 cakegoris

CThe degree
degree

Tano7ance Uncetainty Risk

Cettointy
Increas ihg knowledge

Kssent ial COmponents

Decision alteinatives HA f1mite numbe of decisioh

altednatives available do the decisioo maker at each

tme when decision is made. Tha numbe
point n a

and type of
of Such alteinat1ves
may depend on the
previous decisions made and thei Outcomes
 of natuTe is an
nature A state
Stakes of
unde
the
the Control
Cont7ol
event 01 Scenavio that is not

Of decISion make
COndition
State economy weathes
Fq o
mag be tidentified through
stakes of nature State
The state of
to understand
auhast
Scenanio analysis 1mpact
On a decision
have SeriousS
hature that may
obtaine
obtainedd due
numerical
value
a
Paq off: Jt 1s
Combinak
Combinat 100 Of
ion Of
of each possible
to he application nakure.
states of
alternaErves and
decision

Alternatives
action)
(Cours es of
Stakes
Probabilly Sn
hature S S
P P12
. 2
Pa2
Pa

Pon

10

A
oeootetdajhl
 Steps of De cision makinq process 7r

Tdentifq and define the pToblem

.
List all possible stakes of nature that aTe
Irkaly to OCcu
3. Identify all the CouTSes of action avalable
to the deciSion make
4 kxpress th payoffs (pi) Tesulting from
from each
Combination of Cou1se of action and
and gtoke of
Stake of
nature

55 Apply an appropiate decisiorn theor model to

Select the best course of action frorn the
of meas uTe of effectueres
given List On the basis
to get optimal pay off.
rO1e1Ss C
envi70ments
toba1yPe s 0 Decision mak1ng9

of decisIon mak ing

These aTe 3 types
enuiTonments Cetainty uncestainty and 7isk

Type Decrsion making unde1 Ceatainty

In this decision mak1ng enUIT00ment decision

make has
bas Complete knowledge Cpefect infomst
Of out come due to each dec1sion altenoative

In Such a case he would Select a decision

alternat ive that gvelds the maxlmum
poHo
 Creturn) unde known state of hakure
Fo1 eg Decision to Invest in PPF FD etc.

Tupe
lype 2 Decision making unde1 Risk
de cis10n make1
In this dec ision enVI10nmen t

about possible
does hot have pesfect knawledge
Outcomes ofeve19 decislon alteinakive. t ma
be due to MOTe than One State of hoture.

In this Situation decision make mokes an

aSsumption of th probobilty occu7Ten ce

of pasticulav state of hature

Type 3 Decision makin9 unde uncestanty

In this de cision make I'S unable

ledo specife

the probabilt
Ho1 OCcUTence of pasticulad
State ofnature Here the possible States
aTe k noun. CThis
This 1's a case with
Of
Ot haturc

Intormation than decisions unde Isk.

Less

pbluro erystalgevos