Decision Analysis for Management Judgment (4th ed.) Paul Goodwin, George Wright. Management. Research output: Book/Report › Book. Decision Analysis for Management Judgment Third Edition Paul Goodwin The curve shown is known as a probability density function (pdf). 4th bulb. A defective OK defective OK B defective defective defective OK C OK OK defective OK. Decision Analysis for Management Judgment, 4th Edition. Paul Goodwin, George Wright. ISBN: E-UDT-E Jul pages. Select type: E-Book.

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Solution Manual for Decision Analysis for Management Judgment, 4th Edition - Download as Word Doc .doc), PDF File .pdf), Text File .txt) or read online. By clicking the web link that we offer, you could take guide Decision Analysis For Management. Judgment: Fourth Edition (Wiley) completely. Hook up to net. Decision Analysis for Management. Judgment. Fourth Edition. Paul Goodwin. The Management School, University of Bath. George Wright. Durham Business.

As a result, they felt better placed to anticipate and cope with an unfavorable future if such a future did begin to unfold. Such decisions are difcult because they involve many issues that are likely to have differing levels of importance. For example, in the EC decision, issues such as effects on industry, agriculture, national security, the environment and national culture needed to be addressed.

The MPs found that the approach enabled them to generate ideas and structure the problems so that irrelevant or insignicant arguments were avoided in their decision making.

Automating advice-giving in a building society front ofce Home Counties Building Society a pseudonym took advantage of deregulation in the UK nancial services sector and investigated the possibility of offering tailored nancial products such as pension plans at point-of-sale in their high street branches. They found that tailoring nancial products to client characteristics, although theoretically straightforward, would not be practicable given the limited expertise of counter staff.

One solution was to capture the expertise of the senior pensions adviser and deliver it via an expert system Chapter 17 on a front-ofce desk. A clerk could type in client details and chat while the system matched the best pension plan, printed a hard copy of the details, and explained in plain English the specic advantages of the recommended plan for the particular client.

Allocating funds between competing aims in a shampoo manufacturing company14 The managing director of an operating company which manufactures and markets a well-known brand of shampoo in a particular country had been asked by head ofce to justify his very large advertising budget. The managers responsible for distribution, advertising and promotion met with support staff and advertising agency representatives in a decision conference Chapter However, the insights revealed by a SMART model transformed their thinking and the problem was then seen as one of improving the allocation of funds between distribution, advertising and promotion in order to achieve the objectives of growth, leadership Overview of the book 11 and prot.

An EQUITY resource allocation model Chapter 13 enabled the participants to evaluate the costs and benets of combinations of strategies from each expenditure area. This led to agreement on an action plan which was implemented within a month. Overview of the book The book is organized as follows. Chapter 2 discusses the biases that can arise when unaided decision makers face decision problems involving multiple objectives.

Chapter 3 then shows how decision analysis can be used to help with these sorts of problems. The focus of this chapter is on problems where there is little or no uncertainty about the outcomes of the different courses of action.

Uncertainty is addressed in Chapter 4, where we show how probability theory can be used to measure uncertainty, and in Chapter 5, where we apply probability to decision problems and show how the decision makers attitude to risk can be incorporated into the analysis. As we saw at the start of this chapter, many decisions are difcult to handle because of their size and complex structure. In Chapters 6 and 7 we illustrate methods which can help to clarify this complexity, namely decision trees, inuence diagrams and simulation models.

Of course, all decisions depend primarily on judgment. Decision analysis is not designed to replace these judgments but to provide a framework which will help decision makers to clarify and articulate them. In Chapter 8 we look at how a decision maker should revise judgments in the light of new information while Chapter 9 reviews psychological evidence on how good people are at using judgment to estimate probabilities.

The implications of this research are considered in Chapter 10, where we demonstrate techniques which have been developed to elicit probabilities from decision makers.

There is evidence that most managers see their role as one of trying to reduce and manage risks, where this is possible.

In Chapter 11 we show how decision analysis models can provide a structure for risk and uncertainty management so that the aspects of the decision that have the greatest potential for reducing risks or exploiting opportunities can be identied.

Although, in general, decisions made in organizations are ultimately the responsibility of an individual, often a group of people will participate in the decision-making process. Chapters 12 and 13 describe problems that can occur in group decision making and consider the role of decision analysis in this context. Special emphasis is placed on 12 Introduction decision conferencing and problems involving the allocation of resources between competing areas of an organization.

Major errors in decision making can arise because the original decision problem has been incorrectly framed. In particular, in strategic decision making the decision can be formulated in a way which fails to take into account fundamental changes that have occurred in the organizations environment.

The result can be overcondent decisions which are made on the basis of outdated assumptions. Framing problems and the cognitive inertia that can be associated with them are discussed in Chapter 14, while Chapter 15 shows how scenario planning, an alternative way of dealing with uncertainty, can help to alert decision makers to possible environmental changes.

In Chapters 16 and 17 other alternative forms of decision support, such as the analytic hierarchy process, bootstrapping and expert systems are contrasted with the other decision-aiding methods we have covered in the book.

Making Essential Choices with Scant Information

Chapter 17 also looks at the key questions that a decision maker should consider in order to maximize the effectiveness of decision-aiding methods and concludes with a summary of the types of problems that the different methods are designed to address. References 1. Keeney, R. Phillips, L. Shahini and R. For a wide-ranging survey of decision analysis applications see: Keefer, D.

Krumm, F. French, S. Hess, S. References 13 8. Walls, M. Quaddus, M. Buede, D. Belton, V. Marples, C.

H am al ainen, R. Doukidis, F. Land and G. How people make decisions involving multiple objectives Introduction This chapter looks at how unaided people make decisions involving multiple objectives. Many decisions involve multiple objectives. For example, when choosing a holiday destination you may want the resort with the liveliest nightlife, the least crowded beaches, the lowest costs, the most sunshine and the most modern hotels.

As a manager downloading goods from a supplier, you may be seeking the supplier who has the best after-sales service, the fastest delivery time, the lowest prices and the best reputation for reliability. By unaided we mean people facing decisions like this without the support and structure provided by the decision analysis methods that we will introduce in the subsequent chapters. Suppose that we asked you to multiply 8 by 7 by 6 by 5 by 4 by 3 by 2 by 1 in your head.

You could probably make a good guess at the correct answer but may, or may not, be surprised that the correct calculator-derived answer is 40 Which do you believe produced the most valid answer? Your intuition? Or the calculator? Most of us would tend to trust the calculator, although we might run through the keystrokes a second or third time to check that we had not miskeyed or omitted a number.

The conclusion from this thought experiment is that the human mind has a limited capacity for complex calculations and that technological devices, such as calculators, complement our consciously admitted cognitive limitations.

This assumption underpins all of the decision analysis methods that are covered later in this book, but what happens if decision makers are not aware of their cognitive limitations and make decisions without using these methods? According to research by psychologists decision makers have a toolbox of available strategies and they are adaptive in that they choose the 16 How people make decisions involving multiple objectives strategy that they think is most appropriate for a particular decision.

Simon1 used the term bounded rationality to refer to the fact that the limitations of the human mind mean that people have to use approximate methods to deal with most decision problems and, as a result, they seek to identify satisfactory, rather than optimal, courses of action.

These approximate methods, or rules of thumb, are often referred to as heuristics. Simon, and later Gigerenzer et al. For example, suppose a decision maker knows that the best guide to the quality of a university is its research income.

Suppose also that this is a far better guide than any other attribute of the university such as quality of sports facilities or teaching quality or any combination of these other attributes. In this environment a prospective student who chooses a university simply on the basis of its research income is likely to choose well the simple heuristic would be well matched to the decision-making environment.

Quick ways of making decisions like this which people use, especially when time is limited, have been referred to as fast and frugal heuristics by Gigerenzer and his colleagues. We will rst look at the heuristics which can be found in most decision makers toolboxes and then we will consider how people choose heuristics for particular decision problems.

Heuristics used for decisions involving multiple objectives When a decision maker has multiple objectives the heuristic used will either be compensatory or non-compensatory. In a compensatory strategy an options poor performance on one attribute is compensated by good performance on others. For example, a computers reliability and fast processor speed may be judged to compensate for its unattractive price.

This would not be the case in a non-compensatory strategy. Compensatory strategies involve more cognitive effort because the decision maker has the difcult task of making trade-offs between improved performance on some attributes and reduced performance on others.

The recognition heuristic The recognition heuristic2 is used where people have to choose between two options. If one is recognized and the other is not, the recognized Heuristics used for decisions involving multiple objectives 17 option is chosen.

For example, suppose that a manager has to choose between two competing products, but he or she has not got the time or motivation to search for all the details relating to the products. If the manager recognizes the name of the manufacturer of one of them, but not the other, then they may simply choose the product whose manufacturer they recognize. This simple heuristic is likely to work well in environments where quality is associated with ease of recognition.

It may be that a more easily recognized manufacturer is likely to have been trading for longer and be larger.

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Its long-term survival and size may be evidence of its ability to produce quality products and to maintain its reputation. Interestingly, the recognition heuristic can reward ignorance. A more knowledgeable person might recognize both manufacturers and therefore be unable to employ the heuristic. If ease of recognition is an excellent predictor of quality then a less knowledgeable person who recognizes only one manufacturer will have the advantage. Of course, the heuristic will not work well when ease of recognition is not associated with how good an option is.

The minimalist strategy2 In this heuristic the decision maker rst applies the recognition heuristic, but if neither option is recognized the person will simply guess which is the best option. In the event of both options being recognized then the person will pick at random one of the attributes of the two options. If this attribute enables the person to discriminate between the two options they will make the decision at this point.

If not, then they will pick a second attribute at random, and so on. For example, in choosing between two digital cameras, both of which have manufacturers which are recognized by the decision maker, the attribute possession of movie shooting modes may be selected randomly. If only one camera has this facility then it will be selected, otherwise a second randomly selected attribute will be considered. Take the last2 This is the same as the minimalist heuristic except that people recall the attribute that enabled them to reach a decision last time when they had a similar choice to make.

If this attribute does not allow them to discriminate between the options this time then they will choose the attribute that worked the time before, and so on. If none of the previously used attributes works, then a random attribute will be tried.

However, in some circumstances the decision maker may be able to rank the attributes in order of importance. For example, in choosing a car, price may be more important than size, which in turn is more important than top speed.

In this case the decision maker can employ the lexicographic heuristic. This simply involves identifying the most important attribute and selecting the alternative which is considered to be best on that attribute.

Thus the cheapest car will be downloadd. In the event of a tie on the most important attribute, the decision maker will choose the option which performs best on the second most important attribute size , and so on.

This ordering of preferences is analogous to the way in which words are ordered in a dictionary hence the name lexicographic. For example, consider the words bat and ball. They both tie on the rst letter and also tie on the second letter, but on the third letter ball has precedence.

Like the earlier heuristics the lexicographic strategy involves little information processing i. Despite this, like the recognition heuristic it can work well in certain environments for example, when one attribute is considerably more important than any of the others or where information is scarce. However, when more information is available, the decision will be based on only a small part of the available data.

In addition, the strategy is non-compensatory. With deeper reection, a decision maker might have preferred an option that performed less well on the most important attribute because of its good performance on other attributes.

For example, when you go shopping you might adopt the following semilexicographic decision strategy: If the price difference between brands is less than 50 cents choose the higher quality product, otherwise choose the cheaper brand. Consider the alternatives below. This implies that you will prefer A to C, but a direct comparison of A and C using the strategy reveals that C is preferred.

This set of choices is therefore contradictory. More formally, it violates a fundamental axiom of decision analysis that is known as transitivity which states that if you prefer A to B and B to C then you should also prefer A to C. Thus a strategy, which on the face of it seemed reasonable, is irrational in that it contains inherent contradictions. Any alternative falling below this point is eliminated. The process continues with the second most important attribute and so on.

For example, suppose that you want to download a car and have a list of hundreds of cars that are for sale in the local paper. By continuing in this way you eventually narrow your list to one car and this is the one you choose.

Clearly, EBA is easy to apply, involves no complicated numerical computations and is easy to explain and justify to others. In short, the choice process is well suited to our limited information processing capacity. However, the major aw in EBA is its failure to ensure that the alternatives retained are, in fact, superior to those which are eliminated.

This arises because the strategy is non-compensatory. In our example, one of the cars might have been rejected because it was slightly below the cc cutoff value. Yet its price, service history and mileage were all preferable to the car you downloadd.

These strengths would have more than compensated for this one weakness. The decision makers focus is thus on a single attribute at a time rather than possible trade-offs between attributes. Thus, all the cars, in the earlier example, were available at the same time. In some situations, however, alternatives become available sequentially. For example, if you are looking for a new house you might, over a period of weeks, successively view houses as they become available on the market.

Herbert Simon,7 has argued that, in these circumstances, decision makers use an approach called satiscing. The key aspect of satiscing is the aspiration level of the decision maker which characterizes whether a choice alternative is acceptable or not. Imagine that your aspiration level is a job in a particular geographical location with salary above a particular level and at least three weeks paid holiday per year. Simon argues that you will search for jobs until you nd one that meets your aspiration levels on all these attributes.

Once you have found such a job you will take it and, at least for the time being, conclude your job search. Consider also the decision problem of selling your home.

Offers for download are received sequentially and remain active for only a limited period of time. If you do not accept an offer within a short period of it being made then the prospective downloadr may follow up other possibilities. Reconsider also downloading a used car. Cars are on show in many different showrooms scattered across town, and advertisements for private sales appear in the local newspaper every night.

Should you look at each car? How would you solve these decision problems? Simon7 would argue that in the house sale example you would wait until you received a satisfactory offer. Similarly, in the car download example, you would continue looking until you nd a car that is satisfactory to you. To quote, in a satiscing model, search terminates when the best offer exceeds an aspiration level that itself adjusts gradually to the value of the offers so far received.

In the job search problem, if you are offered, and accept, a satisfactory job it is still possible that you might have found a better job if you had been willing to make further job applications and go for further interviews.

It is also possible that when you started the job search process your expectations were unreasonably high such that you might, at an early stage, delay accepting, or refuse, what objectively might be an excellent job.

A subsequent unsuccessful job search may lower Heuristics used for decisions involving multiple objectives 21 your aspiration level such that you fall back on what is now seen as an acceptable alternative or are forced to accept a job offer that is less desirable than a job you earlier refused as unsatisfactory. Note also that satiscing is yet another example of a non-compensatory strategy. In the job search example, there were no considerations of how much holiday you would be prepared to give up for a given increase in salary.

The nal choice also depends on the order on which the alternatives present themselves. If you are searching for a car to download, the car you choose will probably be different if you decide to change the order in which you visit the showrooms.

Simons satiscing theory is most usefully applied to describe sequential choice between alternatives that become available and indeed may become unavailable as time passes; however, it may also be adopted in situations where, although all the alternatives are in theory available simultaneously, the alternatives are so numerous that it would be impossible in practice to consider them all in detail.

Reason-based choice Reason-based choice offers an alternative perspective on the way people make decisions. According to Shar et al. Reason-based choice can lead to some unexpected violations of the principles of rational decision making. First it can make the decision maker highly sensitive to the way a decision is framed. For example, consider the following two candidates, A and B, who have applied for a job as a personal assistant.

Their characteristics are described below: Candidate A Average written communication skills Satisfactory absenteeism record Average computer skills Reasonable interpersonal skills Average level of numeracy Average telephone skills Candidate B Excellent written communication skills Very good absenteeism record Excellent computer skills Awkward when dealing with others Poor level of numeracy Poor telephone skills Note that candidate A is average or satisfactory on all characteristics, while in contrast B performs very well on some characteristics, but 22 How people make decisions involving multiple objectives very poorly on others.

Research by Shar9 suggests that, if the decision is framed as which candidate should be selected? A selection decision will cause people to search for reasons for choosing a particular candidate and Bs excellent communication skills, very good absenteeism record and excellent computer skills will provide the required rationale.

If instead the decision is framed as which candidate should be rejected? Hence positive features are weighted more highly when selecting and negative features more highly when rejecting.

This violates a basic principle of rational decision making that choice should be invariant to the way the decision is framed. Another principle of rational decision making is that of independence of irrelevant alternatives. If you prefer a holiday in Mexico to a holiday in France you should still prefer the Mexican to the French holiday, even if a third holiday in Canada becomes available.

Reason-based decision making can lead to a violation of this principle. You have the choice between: a downloading the camera now or b waiting until you can learn more about the cameras that are available. You have no problem in deciding to download the camera you can nd a compelling reason to justify this in the cameras remarkably low price.

Option a is clearly preferable to option b. You now have conict between the cheaper Canon and the more expensive, but sophisticated, Nikon. According to research by Tversky and Shar,10 many people would now change their mind and opt to wait in order to nd out more about available cameras.

This is because it is difcult to nd a clear reason to justify one cameras download over the other. The availability of the Nikon camera has caused you to reverse your original preference of downloading the Canon rather than waiting.

A nal interesting consequence of reason-based decision making is that if an option has some features that are only weakly in its favor, or irrelevant, this can actually deter people from selecting that option.

For example, in one study,11 people were asked to choose between two brands of cake mix which were very similar in all features, except that the rst carried an offer to download a collectors plate which most people did not want.

The offer signicantly lowered the tendency to choose the Summary 23 rst brand. Apparently this was because it was difcult to nd reasons to justify this worthless bonus and people felt that they might be exposed to criticism if they chose the option that was associated with it. Factors that affect how people make choices How do people select from their toolbox of heuristics? The key factors appear to be: i the time available to make the decision, ii the effort that a given strategy will involve, iii the decision makers knowledge about the environment, iv the importance of making an accurate decision, v whether or not the decision maker has to justify his or her choice to others and vi a desire to minimize conict for example, the conict between the pros and cons of moving to another job.

Payne et al. When a given level of accuracy is desired they attempt to achieve this with the minimum of effort and use one of the simpler heuristics. Where greater weight is placed on making an accurate decision then more effort will be expended. There is also evidence that people often use a combination of strategies.

When faced with a long list of alternatives they use quick, relatively easy methods to eliminate options to obtain a short list.

Then they apply more effortful strategies to select the preferred option from the short list. In addition, a requirement to justify a decision to others is likely to increase the likelihood that reason-based choice will be used.

Summary This chapter has reported studies of how unaided decision makers make choices when they want to achieve several objectives. In these circumstances people tend not to make trade-offs by accepting poorer performance on some attributes in exchange for better performance on others.

However, recent research has suggested that peoples decisionmaking skills are not as poor as was once believed. In particular, the work of Gigerenzer et al.

We believe it does. The fast and frugal heuristics identied by Gigerenzer et al. Major decisions, such as a decisions on whether to launch a new product or where to site a new factory, do merit time and deep thought.

Decision analysis allows managers to use this time effectively and enables them to structure and clarify their thinking. Fado, H. Peter Grassl, Kathleen A.

Halff, Brian Faris, Peter J. Levy, John A. Taylor, Jr. We reverse the judgment with directions.

The Tavangarians, as trustees of the Tavangarian Revocable Trust dated , downloadd the real property at Lachman Lane in October for the purpose 1 of remodel and resale. The Tavangarians never lived at Lachman Lane and sold the property to Properties in April during the pendency of this litigation.

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Lachman Lane generally runs north-south. The Tavangarian property is across the street, to the southeast of the Eisen property. Both homes have ocean views to the south. Four of the 1 Mr. Tavangarian owns a firm that designs and constructs higher-end single-family homes and hotels.

The power and duties of such committee shall cease on or after December 31, No building, except a detached garage or other outbuilding located sixty 60 feet from the front lot line, shall be located nearer than five 5 feet to any side line. No residence or attached appurtenance shall be erected on any lot nearer than fifteen 15 feet from the front lot line except where the county or city permits and with specific authority of the architectural committee.

The rectangular portion lying east-west had two stories and was located at the north end of, 5 and perpendicular to, the one-story portion of the house that ran north-south at the western end of the east-west segment. Starting in approximately April Mr. Tavangarian began remodeling the residence. He replaced an old rooftop airconditioning unit with new air-conditioning units, ducts, fences and related modifications on the first- and second-story roofs.

In addition, the original roof of the second story was extended by cantilevering it out to the south by eight feet, so that it was coextensive with the new privacy wall. Tavangarian also built a three-sided glass wall enclosure that extended a second-floor bathroom several feet to the south; and he extended the eastfacing side of the second story by approximately two feet, from which he built a deck with a cantilevered roof covering it. Finally, existing hedges along the border of the property at Lachman Lane were removed and replaced.

The new hedges were permitted to grow more than three feet above the ground. By the end of September the project was nearing completion, and the air-conditioning equipment was in place. More precisely, the Eisens alleged paragraph 1 prohibits a property owner from making any alterations to an existing two-story structure and paragraph 11 prohibits a property owner from erecting a structure that unreasonably obstructs the view from any other lot. Neither amended version of the pleading specifically addressed the privacy wall, the cantilevered roof or the glass enclosure that was being constructed at the property.

The court filed its statement of 3 decision on June 23, McAdams Cal. The policy favoring free use of land weighed against that restrictive interpretation. To adopt interpretation 4, the court reasoned, would require it to find that paragraph 1 no longer applied to homes in tract 9 in the absence of an architectural review committee. Both were ordered removed.

They were ordered replaced with significantly less obtrusive equipment. Because the Tavangarians had not discussed their remodeling plans with the Eisens, the court found it reasonable that the Eisens were unable to determine from wooden framing placed during the summer of how extensive the view intrusion would be.

On August 9, the court entered its judgment and injunction after bench trial, retaining its jurisdiction, as described in the statement of decision, to enforce the injunction, including resolution of any disputes that might arise under it. The Landing Homeowners Assn. Southern California Investors, Inc. Marquesa at Monarch Beach Homeowners Assn. City of Beverly Hills Cal.

Although the defense had been asserted in their answer to the second amended complaint, it was omitted in a later-filed amendment to that answer.

The court ruled the defense was untimely and excluded the evidence. Wesley Palms Retirement Community Cal. Leavitt Cal. Dorfman Cal. Amanda Goldt Property Management Cal. Real Estate 4th ed. Fuchsloch 99 Cal. Based on that interpretation of the view protection provided by paragraph 11, the trial court ruled that paragraph 1 afforded even greater protection to improvements that enlarged the existing second story of a residence.

See Zabrucky, supra, Cal. With that interpretation of paragraph 11 as their premise, the Tavangarians argue paragraph 1 similarly does not restrict improvements to the second story of a residence previously approved by the architectural committee. Tunzi Cal. East Bay Union of Machinists Cal. Moreover, as the Tavangarians emphasize, it would have been pointless to challenge that interpretation at trial.

See Cedars-Sinai Medical Center v. Superior Court 18 Cal. Superior Court 57 Cal. We, however, are free to reconsider one of our prior decisions and conclude it was mistaken. See, e. First National Ins. Fresno-Madera Production Credit Assn. Superior Court 40 Cal. See Ward v. Taggart 51 Cal. Planning Com.

Maderis 47 Cal. Superior Court Cal. Taggart, supra, 51 Cal. This rule does not apply here because the trial court was obligated to follow Zabrucky, supra, Cal. Ferwerda Cal. Fuchsloch, supra, 99 Rapids Fun stories for kids on the go. In addition, the original roof of the second story was extended by cantilevering it out to the south by eight feet, so that it was coextensive with the new privacy wall.

The Tavangarians never lived at Lachman Lane and sold the property to Properties in April during the pendency of this litigation.

Table of contents

The use of SMART Chapter 3 in decision conferences Chapter 12 enabled groups of people from a wide variety of backgrounds such as ministers, scientists and regional ofcials to meet together to structure the decision problem. For example, suppose that you want to download a car and have a list of hundreds of cars that are for sale in the local paper.

The key factors appear to be: i the time available to make the decision, ii the effort that a given strategy will involve, iii the decision makers knowledge about the environment, iv the importance of making an accurate decision, v whether or not the decision maker has to justify his or her choice to others and vi a desire to minimize conict for example, the conict between the pros and cons of moving to another job.

For example, the company could adopt a strategy of having a relatively small involvement in a wide range of projects. Seven alternative proposals needed to be considered. site Drive Cloud storage from site. East Dane Designer Men's Fashion.

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