Decision making-Decision making under uncertainty

May 25 • Management Notes, Notes • 13013 Views • No Comments on Decision making-Decision making under uncertainty

Decision making under uncertainty

“A decision  is the is a conclusion  of a process by which one choices between two or more available  courses of  action for the purpose of  attaining a goal”

  • A  decision an act of choice where in a manager forms a conclusion about what must be done under a given situation. And  decision making is a process to arrive at a decision , The process by witch an individual  or organization choesse on position or action from many alternatives.
  • Three  aspects of human behavior are involved in decision making.
  1. Cognition-Activities of mind associated with knowledge
  2. Conation- The action of mind implied by such word as willing , desire and aversion.
  3. Affection- The aspect of mind associated with emotion , feeling , mood and temperament.
  • There are various conditions or environment under which the decisions are made .
  1. Certainty
  2. Uncertainty
  3. Risk
  4. Conflict or competition
  • decision making under Uncertainty- When a decision involves condition about which the manager has no information , either about the outcome or the relative chances or any single outcome, he is said to be operating under conditions of uncertainty. Because the manager does not have any information on which he can develop any analysis, the best he can do is to be aware that he has no opportunity of predicting the events. Under these condition, a number of different criteria have been proposed as possible bases for decision-making.These are as follows.
    1. Maximizing the maximum possible payoff- the maximum criterion(optimistic).
    2. Maximizing the minimum possible payoff- the maximum criterion(pessimistic).
    3. Minimizing the maximum possible regret to the decision maker- The minimax criterion(regret).
    4. Assuming equally likely probabilities for the occurance of each possible state of nature- The insufficient Criterion(insufficient reasoning).
Decision making under uncertainty

Decision making under uncertainty

  • Maximax criterion – this decision criterion is applied by the most optimist decision maker when he thinks optimistically about the happening of events affecting decision .If this philosophy is followed , the manager will chose that alternative under which it is possible to receive the most favourable pay-off.
  • Maximin criterion- this criterion is adopted by the most pessimistic decision maker. The manager believes that worst possible may take place.  This pessimism cause the selection of that alternative which maximizes the least favourable  payoff.
  • Minimax criterion- minimax criterion leads to the minimization of regret. The managerial regret is define as the pay off  for each alternative under state of nature of compitative action subtracted from the most favourable payoff which is possible with the happening of the particular event. When manager chooses an alternatives and when a state of nature takes place which does not result in the most favourable payoff, regret takes place.
  •  Insufficient reason criterion- this proceeding decision criteria assume that without any experience, it  is not possible or worthwhile to allocate any probability to the state of situation. In this case also, probability can allocated through there is no criterion for allocating the probability. The situation is refferd to as  insufficient reason criterion or la place criterion.

QUESTIONS-Enlist the various conditions under which the decision are made?

QUESTIONS-Explain decision making under uncertainty?




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