Decision and Risk Analysis – Examples of decisions: • PBS’s decision about moving to a new site • Investment decisions – what’s the best way to invest some money? • Decisions about new products • Personal decisions about jobs, courses, marriage, etc • Purchase decisions Decisions involve • A decision maker • At least two alternative courses of action (probably a lot more than two) • Criteria by which the alternatives are compared and the best one chosen • For example … Difficulties of decision making 1 Thinking of all viable alternatives – need to be creative 2 Predicting the consequences of each alternative. We may not be sure what is going to happen and need to take account of risk/uncertainty 3 The criteria used to compare alternatives may lead to conflicting recommendations – need multi- criteria analysis We will look at methods to help with 2 and 3 on previous slide • Simple statistics are helpful for 2 and 3 • Probability, concepts for analysing risk and uncertainty, Monte Carlo simulation are helpful for 2 • Multi-criteria analysis is for Difficulty 3. • Regression, hypothesis testing and confidence intervals are helpful for improving predictions and understanding relationships between variables (2). Also in this unit … We will look at the statistical background necessary for other parts of the course …starting next week Remember… • With a lot of the work in this unit it is easy to get the answer, but much more difficult to make sure you’ve got the right answer and interpreted it correctly. It’s not enough to know that the answer is 42; you’ve also got to know what 42 means! • Each week there will be a lecture, some reading and some exercises to do.
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