Decision Theory Essay

Introduction to Decision Making Methods
János Fülöp
Laboratory of Operations Research and Decision Systems,
Computer and Automation Institute, Hungarian Academy of Sciences

1. Decision Making Process
“Decision making is the study of identifying and choosing alternatives based on the values and preferences of the decision maker. Making a decision implies that there are alternative choices to be considered, and in such a case we want not only to identify as many of these alternatives as possible but to choose the one that best fits with our goals, objectives, desires, values, and so on.” (Harris
(1980))
According to Baker et al. (2001), decision making should start with the identification of the decision maker(s) and stakeholder(s) in the decision, reducing the possible disagreement about problem definition, requirements, goals and criteria. Then, a general decision making process can be divided into the following steps:
Step 1. Define the problem
“This process must, as a minimum, identify root causes, limiting assumptions, system and organizational boundaries and interfaces, and any stakeholder issues. The goal is to express the issue in a clear, one-sentence problem statement that describes both the initial conditions and the desired conditions.” Of course, the one-sentence limit is often exceeded in the practice in case of complex decision problems. The problem statement must however be a concise and unambiguous written material agreed by all decision makers and stakeholders. Even if it can be sometimes a long iterative process to come to such an agreement, it is a crucial and necessary point before proceeding to the next step.
Step 2. Determine requirements
“Requirements are conditions that any acceptable solution to the problem must meet. Requirements spell out what the solution to the problem must do.” In mathematical form, these requirements are the constraints describing the set of the feasible (admissible) solutions of the decision problem. It is very important that even if subjective or judgmental evaluations may occur in the following steps, the requirements must be stated in exact quantitative form, i.e. for any possible solution it has to be decided unambiguously whether it meets the requirements or not. We can prevent the ensuing debates by putting down the requirements and how to check them in a written material.
Step 3. Establish goals
“Goals are broad statements of intent and desirable programmatic values.... Goals go beyond the minimum essential must have’s (i.e. requirements) to wants and desires.” In mathematical form, the goals are objectives contrary to the requirements that are constraints. The goals may be conflicting but this is a natural concomitant of practical decision situations.
Step 4. Identify alternatives
“Alternatives offer different approaches for changing the initial condition into the desired condition.” Be it an existing one or only constructed in mind, any alternative must meet the requirements. If the number of the possible alternatives is finite, we can check one by one if it
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meets the requirements. The infeasible ones must be deleted (screened out) from the further consideration, and we obtain the explicit list of the alternatives. If the number of the possible alternatives is infinite, the set of alternatives is considered as the set of the solutions fulfilling the constraints in the mathematical form of the requirements.
Step 5. Define criteria
“Decision criteria, which will discriminate among alternatives, must be based on the goals. It is necessary to define discriminating criteria as objective measures of the goals to measure how well each alternative achieves the goals.” Since the goals will be represented in the form of criteria, every goal must generate at least one criterion but complex goals may be represented only by several criteria.
It can be helpful to group together criteria into a series of sets that relate to separate and distinguishable components of the overall

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Decision Making Theory