DECISION ANALYSIS

1. Goals

Utilize the decision-making models in a risky context

Apply decision-making methods to complex choices
11. Description of the Assignment
Each student elaborates a situation that illustrates a real or fictional business
problem, where the student applies an adequate decision process.
Each student will have to prepare a paper and present it to the rest ofthe class,
in an 8 to 10 minutes session.
The paper should have to contain at least three and not more than four pages,
including the cover page [Template].
Deadlines. The paper should be submitted not later than Sunday the 6th of]uly
2014 at 1 p.m. via Moodle. Presentations will be held on Monday the 7th of]uly
2014 from 1 p.m. to 1.30 p.m. [normal class time).
111. Basic Rules

Problem analysis (50%), document quality (30%), and presentation

(20%) will be evaluated.

It’s an oral presentation; electronic presentation is not necessary.

The assignment consists basically in problem analysis

Any reference or source of readings must be indicated in the paper

Any problem, situation or case already analysed, in particular those

publically available in Internet for example, cannot be imported and
presented as the assignment for this course.

IV. Methodology and Process
The student can use suitable approach or methods to analyse the problem. For
inspiration, the student is allowed to use Examples and Exercises studied in class
or in the Textbook.
The problem can be a simple one, but it must show students’ analysis work. No
need to use all methods!
Iosé Lamas-Valverde, 2014

Business School
Some Rules of Probability
Basics of Probabilities – conditional Probability – When Events Are Not Independent
From both equivalent equations of the the general multiplication rule
we can infer an important rule including conditional probabilities: P(A I B)’P(B)

P<BIA)=j
This equation IS also known as Bayes’ theorem‘. P(A)
Difference between probabilities P (A) B) and P (B)A).

Example 1. In exercise 8 we calculated the probability P (G) N) that a name-brand tire dealer will
provide good service under warranty, P (G) N) = 0.8, but What do we mean when we write P (N ) G)?
This is the probability that a tire dealer who provides good service under warranty is a name-brand
dealer, so we get P (N ) G) = 0.6. There is a big difference between the probabilities they represent.
Example 2. Suppose now that B represents the event that a person committed a burglary and G
represents the event that he or she is found guilty of the crime. Then P (G ) B) is the probability that
the person who committed the burglary will be found guilty of the crime, and P (B)G) is the
probability that the person who is found guilty of the burglary actually committed it.

Thus, in both of these examples we turned around “cause became effect and effect became cause”.
1 Thomas Bayes (1702-1761) – English philosopher. Bayes’ theorem is a logical extension of the observations

described in the section on Venn Diagrams and probability rules.
Business School

Bayes Theorem and Conditional Probability
Baye’s Theorem and conditional Probability – The Bayesian Approach
P(E l H)_ P(H) This equation is also known as Bayes’ theorem, it gives us a simple
P(H ) E) = T method to calculate P(H l E) in terms of P(E l H) rather than P(H n E).
P(E) Where E represents the evidence, and H the hypothesis to appraise.
Remember – The axiom1 of P(HnE)
Conditional probability states that: P(H“:-)= P(E)

Remark 1.
In many situations we will not know P(H n E). However, we often know P(EIH), which we call the
likelihood of the evidence E, that is, how likely we are to see this evidence E given the hypothesis H.
Important Terms

Event Tree diagram

Mutually exclusive events

Marginal event. Marginalization

Condition Probability

Decision Table
1 An axiom, or postulate, is a premise or starting point of reasoning. As classically conceived, an axiom is a premise so evident as to be accepted as true without
controversy.The word comes from the Greek dfiimua (dxioma) ‘that which is thought worthy or fit’ or ‘that which commends itself as evident. Wikipedia.org

European
Business School
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