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Decision Under Uncertainity

The document discusses various criteria for decision making under uncertainty and risk. It describes the Laplace, maximin, minimax, maximax, and minimin criteria, which make assumptions about equal probabilities, pessimism, or optimism. It also covers the Hurwicz criteria, which uses an index of optimism between 0 and 1 to determine a decision between extreme pessimism and optimism.

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Ar Arunima Rane
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46 views5 pages

Decision Under Uncertainity

The document discusses various criteria for decision making under uncertainty and risk. It describes the Laplace, maximin, minimax, maximax, and minimin criteria, which make assumptions about equal probabilities, pessimism, or optimism. It also covers the Hurwicz criteria, which uses an index of optimism between 0 and 1 to determine a decision between extreme pessimism and optimism.

Uploaded by

Ar Arunima Rane
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Quantitative Techniques for

Construction
Lecture 1: Decision Under Uncertainty and Under Risk
Decision Under Uncertainty

Laplace Criteria
► As per this principle if we are uncertain about the various events
then we may treat them as equally probable

► Under this assumption the expected (mean) value of pay-off for


each strategy or action is determined and the strategy with
highest mean value is adopted. If the payoff is in terms of cost
then the strategy with lowest average cost will be adopted.
Maximin Criteria

► The principle is adopted by pessimistic decision makers. In this


minimum pay offs of all actions are considered and the maximum
of those will be adopted.

Minimax Criteria

► The principle is adopted by pessimistic decision makers. In this


maximum pay offs of all actions are considered and the minimum
of those will be adopted.
Maximax Criteria

► The principle is adopted by optimistic decision makers. In this


maximum pay offs of all actions are considered and the maximum
of those will be adopted.

Minimin Criteria

► In this minimum pay offs of all actions are considered and the
minimum of those will be adopted.
Hurwicz Criteria

► This principle stipulates that the decision makers view may fall
somewhere between extreme pessimism of maximin principle and
the extreme optimism of maximax principle.

► For this an index of optimism α is defined on the scale ranging


from 0 to1.

► O indicates extreme pessimism when 1 indicates extreme


optimism.

► For taking a decision in this principle first the decision maker’s


degree of optimism is inhibited on the scale.

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