probably, a less satisfying solution. However, the approach is to make use of
scientific methods to analyse whatever available data to the utmost.
In decisions under uncertainty, sometimes there are two (or more) opponents with
incompatible objectives who try to take decisions with each aiming to benefit at the
expense of the other(s). These situations are different since the decision maker is
operating (or matching his/her skills) against an intelligent or skilled opponent. Such
types of decision problems are governed by the theory of games.
Under conditions of uncertainty, a few decision criteria are available which could
be of help to the decision maker. They are given in Fig. 16.1 and elaborated below.
16.5.1 Maximax Criterion
This criterion offers an optimistic criterion to the decision maker. He first determines the maximum possible payoff for each potential option and then selects the
alternative having the maximum payoff within this group. Table 16.1 is repeated
here as Table 16.2 to illustrate this method. The maximax (Maximum of maximum)
payoff is Rs. 700,000 corresponding to the construction alternative.
CONDITIONS OF CERTAINTY
No difficulty. Everything is certain
CONDITIONS OF UNCERTAINTY
1
Maximax
2
Maximin
3
Minimax Regret
4
Hurwicz (Realism)
5
Laplace (Rationality)
CONDITIONS OF RISK
1
Expected Value (EV)
2
Expected Opportunity Loss (EOL)
3
Expected Value of Perfect Information (E-VPI)
4
Expected Monetary Value (EMV)
5
Incremental (Marginal) Analysis
6
Maximum Likelihood
7
EV- continuous variable
Fig. 16.1 Decision making
criteria under different
conditions
448
16 Decision Taking with Infrastructure
scientific methods to analyse whatever available data to the utmost.
In decisions under uncertainty, sometimes there are two (or more) opponents with
incompatible objectives who try to take decisions with each aiming to benefit at the
expense of the other(s). These situations are different since the decision maker is
operating (or matching his/her skills) against an intelligent or skilled opponent. Such
types of decision problems are governed by the theory of games.
Under conditions of uncertainty, a few decision criteria are available which could
be of help to the decision maker. They are given in Fig. 16.1 and elaborated below.
16.5.1 Maximax Criterion
This criterion offers an optimistic criterion to the decision maker. He first determines the maximum possible payoff for each potential option and then selects the
alternative having the maximum payoff within this group. Table 16.1 is repeated
here as Table 16.2 to illustrate this method. The maximax (Maximum of maximum)
payoff is Rs. 700,000 corresponding to the construction alternative.
CONDITIONS OF CERTAINTY
No difficulty. Everything is certain
CONDITIONS OF UNCERTAINTY
1
Maximax
2
Maximin
3
Minimax Regret
4
Hurwicz (Realism)
5
Laplace (Rationality)
CONDITIONS OF RISK
1
Expected Value (EV)
2
Expected Opportunity Loss (EOL)
3
Expected Value of Perfect Information (E-VPI)
4
Expected Monetary Value (EMV)
5
Incremental (Marginal) Analysis
6
Maximum Likelihood
7
EV- continuous variable
Fig. 16.1 Decision making
criteria under different
conditions
448
16 Decision Taking with Infrastructure