Decision Making Under Various Conditions
The conditions for making decisions can be divided into three types. Namely
a) Certainty, b) Uncertainty and c) Risk
a) Certainty:
In a situation involving certainty, people are reasonably sure about what will
happen when they make a decision. The information is available and is
considered to be reliable, and the cause and effect relationships are known.
b) Uncertainty:
In a situation of uncertainty, on the other hand, people have only a meager
database, they do not know whether or not the data are reliable, and they are
very unsure about whether or not the situation may change. Moreover, they
cannot evaluate the interactions of the different variables. For example, a
corporation that decides to expand its Operation to an unfamiliar country may
know little about the country, culture, laws, economic environment, and
politics. The political situation may be volatile that even experts cannot
predict a possible change in government.
c) Risk: In
a situation with risks, factual information may exist, but it may be
incomplete. 1o improve decision making One may estimate the objective
probability of an outcome by using, for example, mathematical models On the
other hand, subjective probability, based on judgment and experience may be used
All intelligent decision makers dealing with uncertainty like to know the
degree and nature of the risk they are taking in choosing a course of action.
One of the deficiencies in using the traditional approaches of operations
research for problem solving is that many of the data used in model are merely
estimates and others are based on probabilities. The ordinary practice is to
have staff specialists conic up with best estimates.
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