The document discusses different methods for decision making under uncertainty: maximax, maximin, and minimax regret. It provides an example using a payoff matrix to illustrate how to apply each method. Maximax selects the alternative with the highest maximum payoff (build 100 units). Maximin selects the alternative with the highest minimum payoff (build 10 units). Minimax regret selects the alternative with the lowest maximum regret (build 100 units).

1. QM PRESENTATION ON
DECISION MAKING
UNDER UNCERTAINTY
BY GROUP-5
SOUMEN SAMANTA
SAYANTANI BARMAN
SIVAM TIWARI
DEEPSHIK SUBHANKAR

2. DECISION THEORY
• What is Decision Theory?
It is a Statistical tool or technique which is used to
select the best way of doing any work.
Help in taking the best decision by subtracting the
useless alternatives.
Methods of decision theory
1.Decision making under uncertainty
2.Decision making under Risk

3. DECISION MAKING UNDER
UNCERTAINTY
This method is applied when the result of the various alternatives are
not known to the decision maker.
CRITERION
1.MAXIMAX-Maximum of the maximums
2.MAXIMIN-Maximum of the minimums
3.MINIMAX REGRET

4. PAYOFF MATRIX
ALTERNATIVE
ACTIONS
STATE OF NATURE
DEMAND
LOW(10 UNITS) MEDIUM(30 UNITS) HIGH(60 UNITS) VERY HIGH(100
UNITS)
BUILD 10UNITS 100 100 100 100
BUILD 30 UNITS 80 300 300 300
BUILD 60 UNITS 60 200 600 600
BUILD 100 UNITS 40 100 450 1000

5. MAXIMAX
ACTIONS PAY OFF
BUILD 10 UNITS
100
BUILD 30 UNITS
300
BUILD 60 UNITS
600
BUILD 100 UNITS
1000
BUILD 100 WILL BE SELECTED =1000

6. MAXIMIN
ACTIONS PAY OFF
Build 10 units 100
Build 30 units 80
Build 60 units 60
Build 100 units 40
BUILD 10 UNITS WILL BE SELECTED = 100

7. MINIMAX REGRET
• STEP 1: Column wise first calculate the maximum for each outcome
LOW(10 UNITS) MEDIUM(30 UNITS) HIGH(60 UNITS) VERY HIGH(100
UNITS)
100 300 600 1000

8. • STEP 2: Prepare a “Regret Table” by subtracting each outcome cell
value from it’s maximum
Actions LOW(10 UNITS) MEDIUM(30
UNITS)
HIGH(60 UNITS) VERY HIGH(100
UNITS)
MINIMAX
Build 10 units 0 200 500 900 900
Build 30 units 20 0 300 700 700
Build 60 units 40 100 0 400 400
Build 100 units 60 200 150 0 150
BUILD 100 WILL BE SELECTED = 150