Treating uncertainty page 149

Optimistic approach: assumes the best possible outcome of each alternative will occur and then selects the best.

Pessimistic approach: assumes that the worst possible outcome for each alternative will occur and selects the best of these.

Another approach is to simply assume that all states of nature are equally possible.

Decision making under uncertainty

the decision maker considers situations in which several outcomes are possible for ech course of action.

does not know, cannot estimate the probability of occurance of the possible outcomes.

Insufficient information

involves assessment of the decision maker's attitude towards risk.

Knowledge Clasification Page 143

Decision situations are often clasified on the basis of what the decision maker knows or believes about the forecasted results.

• Certainty
• Risk
• Uncertainty

When models are used, any of these conditions can occur and different kinds of models are appropriate for each case.