Group Name

NAMES ROLL NOS.

1. Avi Arora 2. Karuna Londhe 3. Omkar Sawant 4. Priyanka Dethe

11 24 35 41

5. Theresmona Mathew
6. Radhika Naik 7.Vikas Balmiki

66
73 68

Decision Making
Decision theory is the study of making decisions that have a significant impact. Problem Statement : To study effect of adding an extra supplement with Mumbai Mirror on Readership and Sales.

Type 1: Decision Making under Certainty. Decision maker know for sure (that is, with certainty) outcome or consequence of every decision alternative. Type 2: Decision Making under Uncertainty. Decision maker has no information at all about various outcomes or states of nature. Type 3: Decision Making under Risk. Decision maker has some knowledge regarding probability of occurrence of each outcome or state of nature.

Decision Making Under Uncertainty

If the decision maker does not know with certainty which state of nature will occur, then he/she is said to be making decision under uncertainty.

The five commonly used criteria for decision making under uncertainty are: 1. the optimistic approach (Maximax) 2. the conservative approach (Maximin) 3. the minimax regret approach (Minimax regret) 4. Equally likely (Laplace criterion) 5. Criterion of realism with (Hurwicz criterion)

Consider the following problem with two decision alternatives (d1 & d2) and two states of nature S1 and S2 States of Nature D1 Decisions D2 S1- @ Free S2- @ 50p/D1-MM with extra supplement on careers & hangout places D2-MM with extra supplement for kids 18 32 S1 27 S2 23

Optimistic Approach

The optimistic approach would be used by an optimistic decision maker.

The decision with the largest possible payoff is chosen. If the payoff table was in terms of costs, the decision with the lowest cost would be chosen.

Conservative Approach The conservative approach would be used by a conservative decision maker. For each decision the minimum payoff is listed and then the decision corresponding to the maximum of these minimum payoffs is selected. (Hence, the minimum possible payoff is maximized.) If the payoff was in terms of costs, the maximum costs would be determined for each decision and then the decision corresponding to the minimum of these maximum costs is selected. (Hence, the maximum possible cost is minimized.)

Maxi-Min

States of Nature

D1 Decisions D2 Minimum

S1 27
18 18

S2 23
32 23

From the above approach the decision maker would choose to go with Supplying Mumbai Mirror with additional Supplement

Minimax Regret Approach The minimax regret approach requires the construction of a regret table or an opportunity loss table. This is done by calculating for each state of nature the difference between each payoff and the largest payoff for that state of nature. Then, using this regret table, the maximum regret for each possible decision is listed. The decision chosen is the one corresponding to the minimum of the maximum regrets.

MINI-MAX States of Nature S1 0 14 14 S2 4 0 4

D1 Decisions D2 Minimum

From the above approach the decision maker would choose to go with Supplying Mumbai Mirror with additional Supplement

Hurwicz Criterian The Hurwicz alpha is a criterion for decision making under complete uncertainty that represents a comprimise between the Maximin and Maximax criteria. The alpha is a number between 0 and 1. In the special case where it is one, the criterion reduces to Maximin and in the special case where it is zero the criterion reduces to Maximax.

The decision maker can set alpha to a number between zero and one according to his or her level of optimism.

Hurwicz Criterion States of Nature S1 27 S2 23

D1 Decisions

D2
Maximum Minimum

18 18 27

32 23 32

S1=(0.2*27)+(0.8*18)=19.8 S2=(0.2*32)+(0.8*23)=24.8 From the above approach the decision maker would choose to go with Supplying Mumbai Mirror with additional Cost

Laplace Criterian In this case the decision maker thinks that all the situation are equally probable.

States of Nature

D1 Decisions D2

S1 27
18

S2 23
32

E (S1) = * 27 + * 18 = 22.5 E (S2) = * 23 + * 32 = 27.5 From the above approach the decision maker would choose to go with Supplying Mumbai Mirror with additional Supplement

Impact on Sales and Readership

Turnovers In Crores (Approx.)

Hindustan Times Indian Express

125
190 218 142 119 280 0 50 100 150 200 250 300 In Rs. Crores

DNA
Mid-Day Mumbai Mirror Times Of India

Readership Data
50
40 30 20 10 0 12 16 7 8 3 8 Readership in %

46

Conclusion
Through the above different approaches the decision maker is able to decide whether adding an extra supplement would increase the readership and hence the sales.