decision-making under uncertainty‚ including expected payoff‚ expected opportunity loss‚ maximin‚ maximax‚ and minimax regret. 3. Learn how to construct and analyze decision trees. 4. Understand aspects of utility theory. 5. Learn how to revise probabilities with sample information. CHAPTER OUTLINE 19.1 The Decision Table and Decision Making Under Certainty Decision Table Decision-Making Under Certainty
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DECISION ANALYSIS PROBLEMS Many decision analysis problems can be viewed as having three variables: decision alternatives‚ states of nature‚ and payoffs. • Decision alternatives are the various choices or options available to the decision maker in any given problem situation. On most days‚ financial managers face the choices of whether to invest in blue chip stocks‚ bonds‚ commodities‚ certificates of deposit‚ money markets‚ annuities‚ and other investments. Construction decision makers must
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Discussion Paper No. 2010‐21 Daniele Nosenzo‚ Theo Offerman‚ Martin Sefton and Ailko van der Veen December 2010 Inducing Good Behavior: Bonuses versus Fines in Inspection Games CeDEx Discussion Paper Series ISSN 1749 ‐ 3293 The Centre for Decision Research and Experimental Economics was founded in 2000‚ and is based in the School of Economics at the University of Nottingham. The focus for the Centre is research into individual and strategic decision‐making
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True B. False 3. A decision tree branches out to include all of the possible decisions and all of the possible events we are capable of identifying. A. True B. False A. True B. False 4. Because Payoffs and Probabilities are estimates‚ sensitivity analysis is useful. A. True B. False A. True B. False 5. A decision tree requires five or more branches to be useful. A. True B. False A. True B.
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on-line course that can be found via my website: http://www.stanford.edu/∼jacksonm/ The basic elements of performing a noncooperative 2 game-theoretic analysis are (1) framing the situation in terms of the actions available to players and their payoffs as a function of actions‚ and (2) using various equilibrium notions to make either descriptive or 1 For graduate-level treatments‚ see Roger Myerson’s (1991) Game Theory: Analysis of Conflict‚ Cam- bridge‚ Mass.: Harvard University Press; Ken
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1. What is CSX’s motive for buying Conrail? • Synergy effect with lower cost The merged company could consolidate overlapping operations and reduce cost. CSX estimated that cost reduction would yield an additional $370 million in annual operating income by the year 2000‚ net of merger costs. • Expansion of market share by extending railroad network Railroad industry is a mature market. The only option to grow is through acquisitions. In 1995‚ Conrail owned 29.4% of the Eastern rail
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(Balakrishnan/Render/Stair) Chapter 8 Decision Analysis 8.1 Chapter Questions 1) Determining the best payoff for each alternative and choosing the alternative with the "best of the best" is the approach called: A) maximax B) maximin C) Laplace D) minimax regret E) expected monetary value Answer: A Page Ref: 323 Topic: Decision Making Under Uncertainty Difficulty: Moderate 2) Determining the worst payoff for each alternative and choosing the alternative with the "best of the worst" is the approach called:
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ASW/QMB-Ch.04 3/8/01 10:35 AM Page 96 Chapter 4 DECISION ANALYSIS CONTENTS 4.1 PROBLEM FORMULATION Influence Diagrams Payoff Tables Decision Trees DECISION MAKING WITHOUT PROBABILITIES Optimistic Approach Conservative Approach Minimax Regret Approach DECISION MAKING WITH PROBABILITIES Expected Value of Perfect Information RISK ANALYSIS AND SENSITIVITY ANALYSIS Risk Analysis Sensitivity Analysis DECISION ANALYSIS WITH SAMPLE INFORMATION An Influence Diagram A Decision Tree Decision Strategy
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strikes ensure that the risk is capped on both sides‚ and this is a much more conservative strategy which would protect an investor against unlimited losses. Losses are limited to the premium paid to initiate the trade. 2. Deduce the payoff table The payoff table can be explained using the following example; Zimplow shares are currently trading at $4500. An investor expects low volatility in the zimplow share and expects the market to remain range bound. The investor buys 1 ITM Zimplow Call Options
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Solution to Tutorial 1 2011/2012 Semester I MA4264 Tutor: Xiang Sun∗ August 24‚ 2011 Game Theory 1 Review • “Static” means one-shot‚ or simultaneous-move; “Complete information” means that the payoff functions are common knowledge. • Normal-form representation: G = {S1 ‚ . . . ‚ Sn ; u1 ‚ . . . ‚ un }‚ where n is finite. • si is strictly dominated by si ‚ if ui (si ‚ s−i ) < ui (si ‚ s−i )‚ ∀s−i ∈ S−i . • Rational players do not play strictly dominated strategies‚ since they are always not
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