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Assessment of decision structure 155
Equip to
manufacture
calculators
Do not equip to
manufacture
calculators
Equip
half
factory
Equip
whole
factory
Price of calculators
increases in next
half year
Price drop in next
half year
Price steady in next
half year
Increase
calculator
production
Maintain
calculator
production
Reduce
calculator
production
Stop
calculator
production
Figure 6.8 – Toward the correct decision-analytic representation of the calculator
problem?
Do you agree? Actually, you have probably guessed, there is no
obviously right or wrong representation of any problem that is in any
way related to real life. Although Expected Utility may be an optimal
decision principle there is no normative technique for eliciting the
structure of the decision problem from the decision maker. It is really a
matter of the decision analyst’s judgment as to whether the elicited tree
is a fair representation of the decision maker’s decision problem. Once
a structure is agreed then the computation of expected utility is fairly
straightforward. Structuring is therefore a major problem in decision
analysis, for if the structuring is wrong then it is a necessary consequence
that assessments of utilities and probabilities may be inappropriate and
the expected utility computations may be invalid.
Figure 6.9 presents a description of the typical phases in a decision
analysis of a problem that the decision maker wishes to resolve with
help of the practitioner of decision analysis – the decision analyst.
Stages 1 and 2 of the decision process are iterative, the structure of
the decision problem emerges from discussions between the decision
maker and the analyst. Once a structure for the decision representation
has been agreed and probabilities and utilities are elicited (stage 3)
the expected utility for the various acts under consideration can be
computed (stage 4) and the act which has the maximal expected utility
is chosen (stage 5).