Stahsilal Deoro

they
Decision- Mating oces
The desios thory detemi ne
ohmal chratay where a decisson - maker tacad
Cutval
toth Several dewsion altenkves and an Unertain, or

Yiskey, poateu o7 tuture events.

be dehined as the
A decrsios may celectie n
may by
the decisien -maker oh an at, Conwdred to be
accosding to Come pre-designated standards, aco the
auatlable eptions.
Moces involves the

slepe:
The decksie)- making
bollaceng
() Tdni}:caTeon oh aiow poogsbl cutco
mas Called as

Ctaler bt Datun r events dened as

dececio pollem.
ales oh nature) Qeyond th
Thete events (oY Stales
deusien- maker.
Contel o the
actions duueled dl
Tdenti icalTon oh all the
() whech auallable to the
or the staateges ae
decisien makar.
ae ndel
’These
thu deisien- mnukeu

(9 Delemisaliow et th pay -ot tuncl'on skech

decenbes to from di Herent
nuequnts rnlhg
aud euents. the paylh
CombioalFons ob the att ad
Quoted the pay-ob rautkng tem hth
event ud
 alteynahves
(4) choo inA fem the nautos th
yiterien which invele to
basis oh may
gven
ohach may aequire aud Pncerperala
Corme addikon

Pay-ot Tal le
A pay- ot a cbndi onad alue Condihonal

Pofit, locs or may be a Condikmd ot. Conditra

ln the sense that a Certain

oith eah Couie h acton io Aj gen that

event (Shato o natue) Ei has oecuyed.
matux
Rsgel or Otporlunils Los Tabe or Regret
The Quttomes Csnb:natesy
Course Oh achions and eents
Can also spened
tat loss saer. he
terms ob each One o thom
Qiqnel- 9alues a ako
al<o ndfben al
Yeults Mo Cestein ombinakorg Coue o achn
aud eents.
the amount o pay-ott
the glina
thal- would yidd the hghet [Link] each
fen eent.
 Decision Rules
the pay-oH tuble and veqet
take the decision. The as
mahix, psoced
the basis decstien
decisieso may taken.
follo au tho 'deus ion wes
Uncertainly
(1) Decsions Uder
Undur Risk
(9) Decisian

Decis ion Undr unertany

(4) schuatioo wheye there i no Lay
The decisioo
deisiun- makr
cohich the CAlled
sayiow
Sates ol nature Qevenl) e

Oh the
decsion und1r unertainy.
may
to prinuplo which
decisions
empleyed fos
aen wple choice
(Þ) Max imax princple
Oþsmsts CouYse
The oh ackon
ohatwe
that tho best would
An ophmist bel ve pay-ot
ehooses oh all possiie mainu
he suqgate that
Sugguts
ruult. This Yule bet proft ine.
Constdaed, faog the
Shod te
(ú) Mainin Prinuple adopled by perstmiake
This pri nzple ConservaGve ithacr
who are
decisioo-makus 0ne coho Gelives that
pecsmist the
ogpoach. achion he chooses to adopt,
whatew (ousse this appro auh, the
Wort ps hi m. Uingfeom
po
adophon oOh Asatious
Shateeu
puy-otbs vauling thex a ues, t mai mu
Considuedh and among
Qeleted. t caoo
 the bet prcbit
poir
wosl- protits.

(*) turwiez lainuple

The iz
Hur wiz pineple o} decis ion -ypaking
that
deuseo- maker's
Cpdake oh ths
kall omeoheso btwun ertreme pecsimiso thu
i Ss
psntple and the ex beme
Imaimio
Foy this
ndex oh ophmiro
miat pineiple.
matirna o to 1.
6) a Rale
delined 6) nang hile
Te yalue o 0 indcales exheme pe <$i mi
K-1 vepreents exreme pmism.
decision- maker ba to
For this prinple t;rt
patalat
maximum
the
balue of d, thery
thun and tho
for acson) i thee
Tinimu m puofit fos it by c-). The weh Can be
Called tturwrz Gibeson,
produut and We Qlt tha
ltained bor evey stategythis
maximiges Quanby
1.e
tuywi(zCskrioo alue
for sthakegy A; (moit (l-4)in
(v) Laplace ainaple the Simp
the laplace Painiple
Un certein
ph losophy thal are
phitphedeseeory
abw the events 1)
may tua thum

equally bo puobatle. Uoder this auumhon,ie epelked

(mean) yalue o pay- ot to each aatey (louse o}
aton) is deteumni ned and the ssategy tt highet
mean aue adapled
 Laplae painuple tor stsaey Ai ,gtjttni
le

CPeinuple ot ninmox regret)

(v) Savage alnaple
based tlo Conupt
The Savage princple
the
O} Agret and Calls for eleckg
minimises the vgvet.
ason that
As a fint -cep,
a te regnetthe naxiu regret
pay-ob mahix,Hn
to each oh the chatesigs
yalue [Link] which the
detenined and Grabey
vegret minrom
cloge to
This pincplu maix, t may:
pay-ot
prinsphe apled to obtasned by the
houseoer be noted thal the
Sane.
too method eed not be tHhe
eed
(2) Deci sio n ndu Rsk
Gihuaton the
wheretn
The de cision Constds Seveal
decision- maker ohuoses to
9eCUrence
Out comes asd thes peobabthu o
Called decsion under ek.
fhe probab:htU 9ativw uto
Qutcorsne may
e detersnined
gen hay may availabl, the
past vecosds. o paat -recoyd ot
deeiston- makeo hau to awsigo aubjeckive tuobabiiha
his ocperence and judgment to theHo
to
puiniple which
which moy
follo wsnq au
emplo yed fos dectsius) maki
neple
() Maximum ltkel:hood decision- maker lelects
n this
psnuple, he
is ont as gned the bohch has
tre ewet thal-
he decf des the Cous achon
this
Condithonad pay-o conpondi g
the mayimuny
event.

() Bxpeded Pay-ottevent pobabi ihes aigoed

the expekd pay-obe tor
Course o achons
catthto! Calculated y ulbplying
their vepabe pastabihea
pay Nalues with
these poducts. The couse
and then Sursming up the
aion wth hrget apecked pay-o eproentz
ehoice. .evente
de cisios
oh achon (AA.-. Am)
for a

(E,,E-.. En) and m

the opeukd pay -ote demo ted by E o gien b a
 h pay-o% balue for
tohese i; vepreun
th evenb .

(i) xpeded Reqet another

caterion
The opeted neqnet may e
faken. For
oh:ch a deciciDS
priotple Cond:tienal neqvet ahix & duied o
this, tke and 4hen . tapecked gt
pay Callaled s Qpeuted pay-ott tor
alue lecut alae
One
each Coute ef acion. be ete chooen.
leado the sam
Nole: erpakd xeyet tie opeked
decisron Cu Condusien)
eiteion.