Flashcards in Theory for the Exam Deck (33)

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1

## Difference between lexicographic approach and Additive method

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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

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Useful checklist for grouping and clustering

Owner - Decision maker, Shareholders

Objectives - criteria

Options - alternatives

Occasions - context, constraints

Odds - uncertainties

3

## Define Utility

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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

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5 in total

Complete Ordering

Continuity

Independence

Unequal Probability

Compound Lottery

5

## Order Axiom (Complete Ordering)

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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

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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

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Convexed

CME > EMV

11

## Risk Averse

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Concaved

CME < EMV

12

## 5 criteria for additive function

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5 in total

Preferential Independence

Complete Compensation

Corresponding trade off

Interval scale,

Scaling constants

13

## Maximax Benefit

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The "highest" maximum Benefit

Risk taking

Optimistic

14

## Maximin

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The "highest" minimum benefit

Risk Averse

Pessimistic

15

## Minimax Regret Criteria

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The "lowest" maximum regret

Opportunity loss

Pessimistic

16

## Unichain

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

17

## Aperiodic

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If t = 0 or no such a t can be found

Possible to return to itself with a positive probability

18

## Completely ergodic

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Unichain and Aperiodic

19

## Local Scale

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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

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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