One or more alternatives lead to a block of possible outcomes with unknown probabilities. Subjective decision-making

One or more alternatives lead to a block of possible outcomes

…no reliable data…

3

2 approaches to decision making under conditions of uncertainty

The Manager uses

4 solutions criteria :

Solution Criterion of Wald (Maxi-min)

Solution Alfa-criterion of Hurwitz

Solution

The most suitable criteria?

6

…take into account philosophy, temperament and viewpoints of the present

Solution Criterion of Wald (Maxi-min)

The criterion of conservatism and attempt to

Define the worst possible result of each strategy

Choose the strategy that

…probability of different states of economy are unknown

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Decision matrix

The

11

Strategy S1 is just the most conservative - it implies the

The criterion is suitable for small commercial firms whose survival depends

Solution Alfa-criteria of Hurwitz

Determine the index of the solution - d

The coefficient of optimism α is located in the range from

If a Manager is a pessimist, he may decide that α=

Suppose that a Manager is optimistic and decides that a =

…depends on the amount of ….
….depends on their own relations “Manager

Alpha-Hurwitz criterion: draw attention to the worst and the best return

Solution criterion of Savage (disclaimer of mini-max)

Explores losses incurred as a

20

Within each column, the biggest return is deducted from each of

The meaning of measurement of losses:
if we have chosen a strategy

But if we choose any other strategy, the loss is the