Decision analysis

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It has been suggested that this article or section be merged into Decision theory. (Discuss)
It has been suggested that Decision Analysis be merged into this article or section. (Discuss)

Decision Analysis (DA) is the discipline comprising the philosophy, theory, methodology, and professional practice necessary to address important decisions in a formal manner. Decision analysis includes many procedures, methods, and tools for identifying, clearly representing, and formally assessing the important aspects of a decision situation, for prescribing the recommended course of action by applying the maximum expected utility action axiom to a well-formed representation of the decision, and for translating the formal representation of a decision and its corresponding recommendation into insight for the decision maker and other stakeholders.

The term decision analysis was coined in 1964 by Ronald A. Howard, who since then, as a professor at Stanford University, has been instrumental in developing much of the practice and professional application of DA.

Graphical representation of decision analysis problems commonly use influence diagrams and decision trees. Both of these tools represent the alternatives available to the decision maker, the uncertainty they face, and evaluation measures representing how well they achieve their objectives in the final outcome. Uncertainties are represented through probabilities and probability distributions. The decision maker's attitude to risk is represented by utility functions and their attitude to trade-offs between conflicting objectives can be made using multi-attribute value functions or multi-attribute utility functions (if there is risk involved).

Decision analytic methods are used in a wide variety of fields, including business (planning, marketing, and negotiation), environmental remediation, health care research and management, energy exploration, litigation and dispute resolution, etc. However, there is growing concern that these tools do not lead to real improvement in decision making. Some authors [Klien G, 2003. The Power of Intuition. Doubleday, New York.] point out that people don't make decisions this way and that the intuitive style of decision making needs to replace the disaggregated approaches commonly used by most decision analysts. Decision analysts point out that their approach is prescriptive, providing a prescription of what actions to take based on sound logic, rather than a descriptive approach, describing the flaws in the way people do make decisions. Overall a good decision maker should understand both approaches, understanding how people go wrong in making decisions and providing a sound basis for them to make better decisions.

[edit] Bibliography

  • Clemen, Robert, Making Hard Decisions: An Introduction to Decision Analysis, 2nd edition (1996), Belmont CA: Duxbury Press, 1996.
  • Goodwin, P., and G. Wright, Decision Analysis for Management Judgment, 3rd edition (2004). Wiley, Chichester. ISBN 0-470-86108-8
  • Hammond, J.S. and Keeney, R.L. and Raiffa, H., Smart Choices: A Practical Guide to Making Better Decisions (1999). Harvard Business School Press
  • Holtzman, Samuel, Intelligent Decision Systems (1989), Addison-Wesley.
  • Howard, R.A., and J.E. Matheson (editors), Readings on the Principles and Applications of Decision Analysis, 2 volumes (1984), Menlo Park CA: Strategic Decisions Group.
  • Keeney, R.L.,Value-focused thinking -- A Path to Creative Decisionmaking (1992). Harvard University Press. ISBN 0-674-93197-1
  • Matheson, David, and Matheson, Jim, The Smart Organization: Creating Value through Strategic R&D (1998). Harvard Business School Press. ISBN 0-87584-765-X
  • Raiffa, Howard, Decision Analysis: Introductory Readings on Choices Under Uncertainty (1997). McGraw Hill. ISBN 0-07-052579-X
  • Skinner, David, Introduction to Decision Analysis, 2nd Edition (1999). Probabilistic. ISBN 0-9647938-3-0
  • Smith, J.Q., Decision Analysis: A Bayesian Approach (1988), Chapman and Hall. ISBN 0-412-27520-1
  • Winkler, Robert L, Introduction to Bayesian Inference and Decision, 2nd Edition (2003). Probabilistic. ISBN 0-9647938-4-9

[edit] See also

[edit] External links

  • Decision Analysis, a journal of the Institute for Operations Research and the Management Sciences
  • Decision Analysis Society, a subdivision of the Institute for Operations Research and the Management Sciences specializing in Decision Analysis
  • Decision Analysis in Health Care Online course from George Mason University providing free lectures and tools for decision analysis modeling in health care settings.
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