Elements of Decision Theory

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Unit No.3.
DECISION SCIENCE
Presented By:
Dr. V. M. Tidake
Ph. D (Financial Management), MBA(FM), MBA(HRM) BE(Chem)
Professor & Head Dept. of MBA
1
Sanjivani College of Engineering, Kopargaon
Department of MBA
www.sanjivanimba.org.in

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302-DECISION SCIENCE
Unit No.3. Decision Theory
3.2 Elements in
Decision Theory
Presented By:
Dr. V. M. Tidake
Ph. D (Financial Management), MBA(FM), MBA(HRM) BE(Chem)
Professor & Head Dept. of MBA
2
Sanjivani College of Engineering, Kopargaon
Department of MBA
www.sanjivanimba.org.in

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DECISION THEORY
 At the End of the Session Student will be able to
understand-
A. Elements in Decision Theory

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Elements in Decision Making Problem
• Decision Maker
• Courses of Action or Strategies
• States of Nature or Outcomes
• Pay Off
• Pay Off Table

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Decision Maker
• Is an Individual or Group of
Individuals who make the decision.

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Courses of Action or Strategies
• These are the various options available to
the decision maker for solving the problem.
• Denoted as S1, S2, S3 etc.
• Example:
Strategy of keeping Rs. 5 or Rs. 6 or Rs. 7 as a
selling price.

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States of Nature or Outcomes
• These are the events which indicate the
Occurrences which are not under the Decision
Makers Control and which determine the level of
Success for a given Strategy.
• Denoted as N1, N2, N3 etc.
• Example:
Market Demand of either 40 units or 50 units or 60
units.

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Pay Off
• Each combination of a Course of Action
(i.e. Strategy) and a state of nature (i.e.
Outcome) is associated with a Pay Off,
which indicates the Net Gain or Net Loss
to the Decision Maker for that
Combination.

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Pay Off Table
• It is a set of Pay Offs for the given strategies
along with all the states of nature (i.e.
Outcomes) that are mutually exclusive and
collectively exhaustive.

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Pay Off Table
STATES OF NATURE
N1 N2 … Nn
Probability of States
S
T
R
A
T
E
G
Y
P1 P2 … Pn
S1 X11 X12 … X1n
S2 X21 X22 … X2n
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Sm Xm1 Xm2 … Xmn

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EXERCISE
 List down the various elements in Decision Theory

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For More Details Contact
Dr. V M Tidake
tidkevishal@gmail.com
tidkevishalmba@sanjivani.org.in

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Thank You