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state of nature
a potential future influence on the outcome of a decision that is not under the decision makers control.
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certainty
a probability of occdurrence with no potential for deviation from the expected outcome.
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uncertainty
in decision theory, an environment where little or no reliable info is available and the decision maker is unable or unwilling to assign individual probabilities to each possible state of nature.
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payoff
the projected or estimated value of an outcome from a decision.
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payoff table
a decision analysis tool that summarizes potential outcomes from a decision in a tabular format.
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conditional payoff table
a type of payoff table showing the array of estimated decision outcomes associated with 2 or more possible states of nature.
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payoff analysis
a formal approach to decison making involving systematic consideration of decision alternatives using a decision rule, estimated payoff values, and potentailly, states of nature and estimated probabilities.
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dominant decision alternative
in a decision model, a condition that exists if, for all states of nature, the same decision alternative leads to the best expected payoff value.
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best payoff
in a payoff tabel of a decision model, the payoff with the highest positive value in a given state of nature column.
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expected monetary value (EMV) criterion
a decision rule that states that the best decision alternative is the one with the highest positive EmV.
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expected monetary value
estimated payoff for a decision alternative in a payoff table, is the weighted sum of the conditional payoffs associated with each of several potential states of nature.
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conditional payoff
for a decision alternative, an estimated outcome that reflects one of two or more possible states of nature.
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insufficient reason criterion
decison rule that requires the decision maker to select the option with the best payoff.
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maximax criterion
decision rule: identify the decision alternative that maximizes the maximum projected payoff.
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maximax payoff
the value for the decison alternative that maximizes the maximum projected payoff.
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maximin criterion
rule identifies the decision alternative that will yield the maximum minimum payoff.
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regret
the opportunity cost, expressed as a monetary amount, from selecting a nonoptimal decision alternative.
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opportunity cost
a benefit that is forfeited or given up in choosing one decison alternative over another.
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minimax regret criterion
a decision criterion that attempts to minimize the maximum possible regret in a decision outcome by identifying the decision alternative that would result in the least regret.
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regret table
tabular representation of the monetary regret values that would result from an array of decision alternatives and states of nature.
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