Situations- Certainty and uncertainty

Decision Theory

Situations- Certainty and uncertainty

Types of decision making: Decisions are made based upon the information data available about the occurrence of events as well as the decision situation. There are two types of decision making situations: certainty and uncertainty

Decision making under certainty: In this case the decision maker has the complete knowledge of consequence of every decision choice with certainty. In this decision model, assumed certainty means that only one possible state of nature exists.

Decision making under uncertainty: Under conditions of uncertainty, only pay-offs are known and nothing is known about the lilkelihood of each state of nature. Such situations arise when a new product is introduced in the market or a new plant is set up. The number of different decision criteria available under the condition of uncertainty is given below.