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Calculate the certainty equivalents for the original tree and for the new tree,compare them, and discuss any differences between the two

Describe the decision strategy associated with the optimal decision,and determine its expected value

 

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For this project,you will evaluate a decision problem that issue bijection certainty or risk using a decision tree.This decision should focus on a single objective and should be related to a system with which you are personally familiar.Be sure that you have access to the decision authority(i.e.,the primary decision maker),whether this is you or someone else,so that you can ask that person questions and establish their preferences with respect to risk. You may use the Precision tree software that is available through your text book to create and evaluate your decision tree,but you are not required to do so. For this project,you will  submit a written report that contains the following sections:

 

1.Introduction:Here you will describe the decision problems interest,state who the decision authority is for this problem(it can be you or another person),and explain why it is a significant For this project,you should focus on single decision–state this decision explicitly,including a description of the possible alternatives(keep in mind that the status quo soften legitimate alternative).Other than the decision authority,who are the key stakeholders for this decision?

 

2.Objective:Next, described the single objective of your analysis and explain why you select ditto solve the Then,provide and explain the objective function that you will use to evaluate the alternative solutions that you described in Section1.The objective should be written inter So fake measure of system performance,and the associated objective function should allow you to solve for this measure of performance for different outcomes.

 

3.Sources of uncertainty:In this section,you will describe inv detail all key sources of uncertainty with respect to your decision Then,identify which of the resources of uncertainty you will focus on your analysis(you do not need to include the mall),and explain why you chose to focus on these risks.

 

4.Identification of possible outcomes:Describe all of the potential outcomes for each source of uncertainty that you are focusing on in you analysis,inter soft the performance measure associated with your objective Explain how you estimated the values of each of these outcomes. It might be helpful at this stage to sketch a preliminary version of a decision tree so that you can clearly establish the logical relationships between each alternative,the associated risks and the outcomes.

 

5.Evaluation of associated probabilities:Determine the probability associated with each of the potential outcomes you described in Section Describe the process you used to estimate these probabilities. Is there any potential for bias in this process? Ifso,how might you reduce this bias?

 

6.Build and solve the decision tree:Provide the decision tree that you will use to solve the decision problem(including all nodes,probabilities, and potential outcomes), and then solve the tree to find the optimal expected value for the measure of performance associated with your objective Describe the decision strategy associated with the optimal decision,and determine its expected value,in terms of the measure of performance that you identified in your objective.

 

7.EVPI:For each individual source of uncertainty in your decision tree,find the expected value Then (if applicable),find the expected value of perfect information for all of these sources combined.

 

8.EVII:Select one of the sources of uncertainty in your Brain storm and develop a list of potential methods/sources of information that could help to improve your assessment of the probabilities that are associated with this uncertainty.Out of this list,selection strategy,and calculate the expected value of having the imperfect information that this strategy will provide you.

 

9.Incorporating utility and risk a version:If you are the decision authority for this problem,you will now assess your own utility function for this decision;otherwise, you will work with the decision authority to develop his/her utility Using this utility function, calculate the utility values associated with all of the potential outcomes for your decision problem, and insert these values into the decision tree you developed in Section6. Solve the tree again,and describe the decision strategy associated with the optimal decision for this new tree.Calculate the certainty equivalents for the original tree and for the new tree,compare them, and discuss any differences between the two.

 

10.Conclusion:Briefly summarize your decision process and the outputs of the process that you can use to help guide your decision. Based on what you learned from this process,what should the final decision strategy be?

 

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