Group Name NAMES ROLL NOS. 1. Avi Arora 11 2. Karuna Londhe 24 3. Omkar Sawant 35 4. Priyanka Dethe 41 5. Theresmona Mathew 66 6. Radhika Naik 73 7.Vikas Balmiki 68
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Group NameNAMES ROLL NOS.
1. Avi Arora 11
2. Karuna Londhe 24
3. Omkar Sawant 35
4. Priyanka Dethe 41
5. Theresmona Mathew 66
6. Radhika Naik 73
7.Vikas Balmiki 68
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Decision Making
Decision theory is the study of making decisions that have asignificant impact.
Problem Statement : To study effect of adding an extra
supplement with Mumbai Mirror on Readership and Sales.
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Type 1: Decision Making under Certainty. Decision maker know for sure (that is, with
certainty) outcome or consequence of every decision alternative.
Type 2: Decision Making under Uncertainty. Decision maker has no information at all
about various outcomes or states of nature.
Type 3: Decision Making under Risk.
Decision maker has some knowledge regarding probability of occurrence of each
outcome or state of nature.
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Decision Making Under Uncertainty
• If the decision maker does not know with certainty which state of nature will
occur, then he/she is said to be making decision under uncertainty.
The five commonly used criteria for decision making under uncertainty are:
1. the optimistic approach (Maximax)
2. the conservative approach (Maximin)
3. the minimax regret approach (Minimax regret)
4. Equally likely (Laplace criterion)
5. Criterion of realism with (Hurwicz criterion)
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Consider the following problem with two decision alternatives (d1 & d2) and twostates of nature S1 and S2
States of Nature
S1 S2D1 27 23
Decisions
D2 18 32
S1- @ Free
S2- @ 50p/-
D1-MM with extra supplement on careers & hangout placesD2-MM with extra supplement for kids
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Optimistic Approach
• The optimistic approach would be used by an optimistic decision maker.
•
The decision with the largest possible payoff is chosen.
• If the payoff table was in terms of costs, the decision with the lowest cost would
be chosen.
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Conservative Approach
• The conservative approach would be used by a conservative decision maker.
• For each decision the minimum payoff is listed and then the decision corresponding
to the maximum of these minimum payoffs is selected. (Hence, the minimum
possible payoff is maximized.)
• If the payoff was in terms of costs, the maximum costs would be determined for each
decision and then the decision corresponding to the minimum of these maximum
costs is selected. (Hence, the maximum possible cost is minimized.)
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Maxi-Min
States of Nature
S1 S2
D1 27 23Decisions
D2 18 32
Minimum 18 23
From the above approach the decision maker would choose to go with
Supplying Mumbai Mirror with additional Supplement
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Minimax Regret Approach
• The minimax regret approach requires the construction of a regret table or an
opportunity loss table.
• This is done by calculating for each state of nature the difference between each
payoff and the largest payoff for that state of nature.
• Then, using this regret table, the maximum regret for each possible decision is
listed.
• The decision chosen is the one corresponding to the minimum of the maximum
regrets.
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MINI-MAX
States of Nature
S1 S2
D1 0 4
DecisionsD2 14 0
Minimum 14 4
From the above approach the decision maker would choose to go with
Supplying Mumbai Mirror with additional Supplement
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Hurwicz Criterian
• The Hurwicz alpha is a criterion for decision making under complete uncertainty that
represents a comprimise between the Maximin and Maximax criteria.
• The alpha is a number between 0 and 1.
• In the special case where it is one, the criterion reduces to Maximin and in the specialcase where it is zero the criterion reduces to Maximax.
• The decision maker can set alpha to a number between zero and one according to his
or her level of optimism.
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Hurwicz Criterion
States of Nature
S1 S2
D1 27 23Decisions
D2 18 32
Maximum 18 23
Minimum 27 32
S1=(0.2*27)+(0.8*18)=19.8 S2=(0.2*32)+(0.8*23)=24.8
From the above approach the decision maker would choose to go with
Supplying Mumbai Mirror with additional Cost
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States of Nature
S1 S2
D1 27 23
Decisions
D2 18 32
E (S1) = ½ * 27 + ½ * 18 = 22.5
E (S2) = ½ * 23 + ½ * 32 = 27.5
From the above approach the decision maker would choose to go with
Supplying Mumbai Mirror with additional Supplement
Laplace Criterian
In this case the decision maker thinks that all the situation are equally
probable.
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0 50 100 150 200 250 300
Times Of India
Mumbai Mirror
Mid-Day
DNA
Indian Express
Hindustan Times
280
119
142
218
190
125
Turnovers In Crores (Approx.)
In Rs. Crores
Impact on Sales and Readership
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0
10
20
30
40
50 46
127 8
16
38
Readership Data
Readership in %
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Conclusion
Through the above different approaches the decision maker is able to decide
whether adding an extra supplement would increase the readership andhence the sales.