Rational Decision Making for Managers: An Introduction

Acknowledgements.

Preface.

PART 1 The Decision Context.

1 Introduction to Decision-making.

Introduction.

What is a Decision?

Uncertainty and Risk in Decision-taking.

Probability.

Rational Decision-taker.

Biases.

Descriptive, Normative, and Prescriptive Decision-making.

Models.

Who Should Participate in a Decision Process?.

Overview of Text.

Further Reading.

2 Time Series Forecasting.

Introduction.

Creating a Time Series Forecast – Overview.

Data Types.

Identifying Trends.

Decomposition.

Finding the Seasonal Component.

Average and Moving Average Forecasts.

Simple Exponential Smoothing.

Exponential Smoothing for Data with a Trend.

Exponential Smoothing for Non-Stationary Data with Seasonality.

Standard Deviation of the Forecast.

Choosing Appropriate Forecasting Models.

Transforming Data.

Alternative Time Series Forecasting Techniques.

Summary.

Further Reading.

3 Explanatory and Qualitative Forecasting.

Introduction.

Quantitative Explanatory Forecasting.

Linear Regression.

Elicitation of an Expert’s Probabilities.

Structured Group Processes.

Scenario Analysis.

Summary.

Further Reading.

PART 2 One-off and Repeat Decisions.

4 Inventory Management.

Introduction.

The Fixed Order Quantity Inventory System.

The Newsvendor Model.

The Economic Order Quantity Model with Known Stock-out Costs.

Summary.

Further Reading.

5 Payoff Matrices.

Introduction.

Payoff Matrices with Certainty.

Payoff Matrices with Multiple Future States and a Dominant Strategy.

Payoff Matrices with Strict Uncertainty.

Payoff Matrices with Uncertainty or Risk.

Choosing a Decision Criterion.

The Value of Perfect Information.

Sensitivity Analysis.

Summary.

Further Reading.

6 Linear Programming.

Introduction.

Solving the Linear Programme.

Corner Method.

Sensitivity Analysis.

Changing Constraints.

Changing the Objective Function.

Using Excel Solver.

Integer Programming.

Formulating Decision-making Problems as Linear Programmes.

Summary.

Further Reading.

7 Simultaneous Move Games.

Introduction.

Terminology.

Zero-sum Games.

Non-zero-sum Games.

Mixed Strategies for Players with Three or More Strategies.

Continuous Strategies.

N-Player Games.

Summary.

Further Reading.

PART 3 Sequential Decisions.

8 Robustness Analysis.

Introduction.

Robustness Analysis.

Robustness Analysis as a Framework: Literature Examples.

Further Reading.

9 Decision Tree Analysis.

Introduction.

Decision Tree Notation.

Constructing a Decision Tree.

Rolling Back a Decision Tree 1: Sequential Decision and Event Nodes.

Rolling Back a Decision Tree 2: Waiting for Uncertainty to Resolve.

Rolling Back a Decision Tree 3: Exploratory Actions and Posterior Probabilities.

Introduction to Sensitivity Analysis.

Univariate Sensitivity Analysis.

Bivariate Sensitivity Analysis.

N-Way (Multivariate) Sensitivity Analysis.

Summary of the Decision Tree Analysis Method.

Chapter Appendix. A Brief Introduction to Monte Carlo Simulation.

Further Reading.

10 Sequential Games.

Introduction.

Extensive Form.

Rollback Revisited.

Asymmetry of Information.

Signals.

Signal Jamming and Screening.

Bargaining.

Summary.

Further Reading.

Appendix: Mathematics Revision.

References.

Index.