Decision Analysis

Abstract

Decision analysis is as much of an art as a science. Mathematical decision analysis must be considered in the context of an individual decision-maker. Decision analysis differs from the mathematical structure of many other areas of Operations Research in that it contains a high degree of uncertainty. This chapter discusses a simple decision-making problem. Despite its simplicity, it illustrates many of the difficulties inherent in the decision-making process. Game theory addresses possible approaches to decision-making under the assumption of complete ignorance . It is described in terms of players, payoffs, and strategies. It has been observed that people sometimes change their answers when we simply alter the wording of the question. This framing effect is closely related to the idea of the zero illusion . Decision-makers are prone to a variety of misconceptions and idiosyncratic behavior that can severely limit their ability to make rational choices. The availability of information can influence people in surprising ways.

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