Decision and Risk Analysis by batmanishere


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									 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
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
• 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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