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Flashcards in Theory for the Exam Deck (33)
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1

Difference between lexicographic approach and Additive method

Lexicographic approach is logical and simple but does not allow for trade offs the same way the additive method does.
The additive method also considers the DM risk preference

2

Five Os Method

Useful checklist for grouping and clustering
Owner - Decision maker, Shareholders
Objectives - criteria
Options - alternatives
Occasions - context, constraints
Odds - uncertainties

3

Define Utility

The amount of satisfaction that a consumer receives by consuming a good or service
Helps quantify the DM risk preference

4

Von Neumann and Morgenstern Axioms

5 in total
Complete Ordering
Continuity
Independence
Unequal Probability
Compound Lottery

5

Order Axiom (Complete Ordering)

If r1 > r2
and r2 > r3
then r1 > r3

6

Independence Axiom

Given r1 and r2 are indifferent and any reward r3 and probability p, the following lotteries are indifferent

7

Posterior Probabilities

flipping of the formulas you already have

8

Significance of zeros in Markov chain matrix

Represent transitions that cannot be made. It is impossible to go from one to the other

9

Simons 1976 Satisficing model

Simon 1976
Set a satisfactory level of performance for the most important attribute
Eliminate alternatives
Repeat steps for next most important alternative
Can model on an graph with criteria on each axis
Satisfice because unable to maximise
Useful at preliminary stages and routine decisions
Based on bounded rationality
is NOT a prescriptive model

10

Risk taking

Convexed
CME > EMV

11

Risk Averse

Concaved
CME < EMV

12

5 criteria for additive function

5 in total
Preferential Independence
Complete Compensation
Corresponding trade off
Interval scale,
Scaling constants

13

Maximax Benefit

The "highest" maximum Benefit
Risk taking
Optimistic

14

Maximin

The "highest" minimum benefit
Risk Averse
Pessimistic

15

Minimax Regret Criteria

The "lowest" maximum regret
Opportunity loss
Pessimistic

16

Unichain

There is only one single recurrent class. All transient states transition into this.

17

Aperiodic

If t = 0 or no such a t can be found
Possible to return to itself with a positive probability

18

Completely ergodic

Unichain and Aperiodic

19

Local Scale

Defines possible outcomes in relation to the available alternatives given in the problem
Lazy approach

20

Global Scale

Using all possible outcomes in similar contexts, outcomes which could realistically occur

21

Hurwicz Criterion

Degree of optimism
Realistic view

22

Laplace Criterion

All states are equally likely

23

Continuity Axiom

If r1 > r2 and r2 > r3, then there exists p which makes a lottery of r1 (which will defo occur) indifferent to a lottery of r2 and r3

24

State is Accessible?

probability going from one to another is greater than 0

25

State is Communicative?

State i accessible from state j and state j accessible from state i

26

State is reflexive?

State communicates with itself

27

Sate is symmetric?

If state i communicates with state j, then state j communicates with state i

28

State is transitive?

if state i communicates with state j, and state j communicates with state k, then state i communicates with state k

29

Transient state

probability of returning to a state once it has left is <1 (or may never return)

30

Recurrent state

You will definitely return to the state once you have left