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IEOR 166 Professor Shmuel S. OrenSpring 2012 E-mail: [email protected]
Course Title: Decision Analysis
Class Meetings:Lectures: Le conte 3
Monday and Wednesday 11:00 – 12:00PMSections: Le Conte 3
Friday 11:00 – 12:00PM
Lecturer: Professor Shmuel S. OrenOffice Hours: 4135 Etcheverry Hall
Monday 12:30 – 1:30PM, or by appointmentPhone: 2-1836
GSI: Ruoyang LiOffice Hours: TBAEmail: [email protected]: Reader (obtain from Vicks Copy 1879 Euclid Av.)Additional References:
Ronald Howard and James Matheson The Principles and Application of Decision Analysis, Published by Strategic Decisions Group, 3000 Sand Hill Rd., Menlo Park California 94025
Robert Clemen, Making Hard Decisions, Duxbury Press, Belmont California.
Prerequisites: A basic course in Probability (134, 172 or equivalent), A basic course in Calculus.
Grading Policy: Homework: 15% (can work in pairs and submit two copies)Midterm IMidterm II 25%H+15%LFinal 45%
Exam dates:Midterm 1: March 2, 2012Midterm 2: April 6, 2012Final : Tuesday May 8, 2011 7-10PM
All exams are closed book. 1 sheet allowed per exam (as well as the previous sheets)Website: https://bspace.berkeley.edu
Course Outline
• Introduction - Thumbtack game and other examples (hand outs)• General discussion of decision problems and ways to approach them. How to bring creativity,
knowledge and values (economic as well as ethical considerations) into the decision making process in a rational and consistent manner. (News clips and examples)
• The Decision Analysis cycle: (papers No 1 and 2 from reader by Howard and Matheson)
• Basic concepts and tools (Reader - Oliver and Marshal Chapt. 1)Decision trees Influence diagramsProfit lotteries
• Single-stage decision problems with discrete and continuous decision space (Reader – Oliver and Marshal Chapt. 2)
• Multistage decision problems (Reader – Oliver and Marshal Chapt. 3&4)• Forecasting and expected value of perfect information (Reader – Oliver and Marshal Chapt. 3)• Using Bayes' rule and value of imperfect information• Problem formulation using influence diagrams and decision trees (Reader – Oliver and Marshal
Chapt. 4 and paper on “The decision to Seed Huricanes)• Sensitivity analysis (deterministic and stochastic) (Reader – Oliver and Marshal Chapt. 5)• Using computer software for Decision Analysis (DATA by TREEAGE CO.)• Utility theory: (Reader - paper by Howard on Risk Preference)
Axioms of utility theoryAssessments of utility functionsRisk sensitivity and its measuresExponential utility functions; The "Delta" property and constant risk aversion
• Multiattribute decision problems (Reader – Oliver and Marshal Sec.. 7.1-7.6 and Clemen Chapt. 16)
Identifying and quantifying decision attributes including ethical considerations and intangibles such as human life. Dealing with conflicting attributes; identifying conflicts and agreement, non inferior frontier approachAdditive utility functions with constant tradeoffsPreferential independence, utility independence and additive independenceSimple multiattribute utility functions.
• Assessment of subjective probability (Reader - paper by Karl Spetzler) and Matheson)Assessment techniques, biases and how to avoid them.• Multiperiod decision problems (Reader - Note by Oren and paper by James Smith)
Time preference, multiattribute approachDiscounted present valueBanker-Broker approach
