New England College Basic Elements of Decision Making in Business Discussion

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*first complete the discussion assignment which should be 300 words.

* Then respond to the posts that the two peers have written. Each response should be 200 words, the response should start of with “Hello (name)”

Discussion Assignment: The basic elements of decision making amid uncertainty, as discussed in SQTs 6 and 7, are: (1) define the set of decisions or possible outcomes; (2) develop probabilities associated with these outcomes; and (3) analyze monetary values and risk associated with these outcomes. Critique this model for decision making amid uncertainty. How does the model help decision makers and how might the model hinder optimal decision making?

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Peer Posts

Kyle

The one thing that the expected model does well is long run statistics. When taking an average over time to make a profit projection over a few year term a model like the expected value model would be a potentially useful tool in checking the planning long run profitability.

However, the expected value model would not work well to predict the next event. Say you have analyzed a stores profit over a 5-year term and conclude that your average daily revenue is $2000. If you owned a coat store you may find that your daily revenue is much higher in the winter while finding that the July sales do not seem to consistently reach the average and underperform the average in the summer months. New England College Basic Elements of Decision Making in Business Discussion

While the expected value model may give you a useful projection of your yearly sales it does not accurately reflect the likelihood of a certain event occurring on a given day. The expected value model estimation of the above example of $2000 a day in revenue may not be an accurate reflection of the likelihood of a sales projection for July reaching this average. Another weakness of the expected value model may get skewed by an unusual event that may not have a high probability of occurring again. Let us say the Winter Olympics are coming to the city where you own a store. The Winter Olympics only occurs every four years and if you owned a store next to a stadium participating in this event you may find that an unusual increase in sales activity that has no reason to return to these peak levels without this event. In these circumstances correcting or altering the data inputs in the model may be able to adjust for this. Basing business decisions on an inflated average that is skewed by a one time may have its shortfall and result in inaccurate projections of future demand.

Using shorter term average such as sales over the last 30 days instead of the 5-year average in circumstances like this may be more appropriate. A comparison against last years Q1 revenue compared to this year’s Q1 revenue may be a better option. Using a continuous data source like a sale-by-sale average that updates each time a sale occurs; you could have the opportunity to spot a change in trend much faster than you would with the expected value model.

If you noticed an unusual pattern that appeared to deviate away from the normal you may want to see if something has changed or expect to return to the mean. If sales are above average and outside of normal such as three standard deviations away from the normal sales, you may then want to investigate what is causing the change and how to better prepare for it and adjust. New England College Basic Elements of Decision Making in Business Discussion

Damien

Decision making is one of the most common activities we use in our everyday life. Every part of our action is directly influenced by a choice we have to make. A problem where the person is required to make a decision is aware of various outcomes but has insufficient information to assign any probabilities is known to be decision-making under uncertainty. Generally, we tend to feel uncertain when we don’t know how a result of a choice we made will come out. For example, when we want to launch a new product or open a new company a wave of uncertainty might influence our willingness. Factors such as how the people are going to react to the product, new competitors, economic shift, and even the customer demand will be a huge part of our decision-making process. The basic elements of decision making, amid uncertainty as discussed in SQT’s 6 and 7 are discussed and classified as follows. There is a criterion that influences the role of the decision-maker and to start with the maximin criterion. In this, the decision-maker is pessimistic about the future. The decision-maker in this particular set locates the minimal pay-off of each possible outcome. The maximum payoff of this minimum is then used as the step to be taken. The next criterion is the maximax where the decision-maker is optimistic about the future. The optimist locates the maximum payoff for each step taken. The maximum payoff is arrived at and positively used. The Regret criterion is also a decision making step where the decision-maker bases their choices by focusing on deeds they did before that made them not achieve their best position at something. Therefore, in this case, the decision-maker will select the maximum regret for a choice done before and the corresponding minimum regrets he or she considers optimal. The Hurwicz Criterion focuses on the decision-maker either being optimistic or pessimistic. In the criteria, the rate of optimism is gauged against the rate of pessimism and the one with the higher rate will affect the action to be worked upon. In the Laplace criterion, the decision-maker assumes that probabilities of any occurrence can be expected as there is no knowledge on what is to be expected. The above process will lead to a lot of different outcomes for starters the first criteria maximin criterion the decision made under a pessimistic view may bring about a decision of a result that was not expected. Using any of these criteria to arrive at a decision may lead to either regrets or success. The decision-maker should be ready to be faced with a lot of results when they have used any of the above criteria. For instance, after making a careful decision basing on the maximax criterion a sense of high expectation may be upon the decision-maker. This expectation may be shattered when the results are not what they expected and a sense of regret may befall them. Decisions also made under uncertainties will lead to loss of funds if the stakes that the decisions were made on were high. These methods of decision making amid uncertainty will hinder optimal decision making as it is not a dependable way of arriving at a decision. The techniques all have their levels of risks and are not full proof as they are not derived from a dependable manner. New England College Basic Elements of Decision Making in Business Discussion