Elements of Decision Problems - Human Decision Making - Lecture Slides, Slides of Human-Computer Interaction Design

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Elements of

Decision Problems

Elements of Decision Problem

 Values and Objectives

 Decisions to Make and Alternatives

 Uncertain Events and Outcomes

 Consequences

Values and Objectives (Cont’d)

 Multiple Objectives

 Some objectives can be related  e.g. Improving the image of a company may in turn bring it more profits  There can be tradeoffs among multiple objectives  e.g. Economic benefits gained by using chemical insecticide lead to health risk  A requisite model includes all objectives that matter and only those that matter in the decision context at hand

Boeing Example

Boeing needs computing power for a number of tasks, including

accounting and word processing, CAD, inventory control and

tracking, and manufacturing support. When the company’s

engineering department needed to expand its high-power computing

capacity by purchasing a supercomputer, the manager faced a huge

task of assembling and evaluating massive amounts of information.

There were system requirements and legal issues to be considered,

as well as price and a variety of management issues.

What are the values and objectives of Boeing?

Decisions to Make

 Think about All Possible Alternatives (Be Creative !)

 Specific alternatives  e.g. Purchasing or leasing a car  Choose a specific value out of a range of possible values  e.g. Deciding the amount of money to invest in a project  Consider the possibility of no action and waiting to obtain more information

Decisions to Make (Cont’d)

 Sequential Decisions

 Multiple decisions are made sequentially  Dynamic decisions: a future decision may depend on exactly what happened before  e.g. First decide purchase or lease a car, next decide what kind of car to purchase or lease, then decide where to get the car, …  It is important to identify the order in which the decisions occur

First Decision

Second Decision

Third Decision

Last Decision

Now Time Line^ Planning Horizon

Uncertain Events (Cont’d)

 The time sequence of uncertain events in sequential decisions is

critical

 What events are unknown and what information is available before a

decision is made

Uncertain Events

Resolved before the second decision

Resolved before the third decision

Resolved before the last decision

Resolved after the last decision

First Decision

Second Decision

Third Decision

Last Decision

Now Time Line^ Planning Horizon

Consequences

 The final results after the last decision has been made and the last

uncertain event has been resolved

 Planning Horizon

 The end of the time line when the final consequences are revealed  How far to look into the future?  Choosing a planning horizon that is consistent with the decision context and relevant objectives

 Valuing Consequences

 Often in terms of monetary values  e.g. cost, profit  Nonmonetary values  e.g. public image, goodwill  Tradeoffs among multiple objectives

Time Value of Money

 The value of a dollar depends on when it is available to the decision maker

 Investing dollars at different points in time is a special tradeoff (Why?)

 Present Value (PV) of Cash Flow

 PV of amount x at the end of n time periods

r n PV x n r x ( 1 ) ( , , )   r : interest rate per time period

Suppose a savings account pays 5% simple annual interest and

you will receive $1,500 at the end of three years from now, then

the PV of the $1,500 is

Suppose a savings account pays 5% annual interest compounded

monthly and you will receive $1,500 at the end of three years from

now, then the PV of the $1,500 is

$1,500/(1+0.05)^3 = $1,295.

monthly interest rate

$1,500/(1+0.05/12)^36 = $1,291.

Exercise

An employer needs to choose a new employee from a set of

applicants whom he will interview. Identify the basic element of this

decision problem. What are the employer’s objectives? What are the

specific decisions to make and alternative? What are relevant

uncertain events? How does the problem change if the employer has

to decide whether to make an offer on the spot after each interview?

Objectives

• Increase market share
• Improve public image
• …

Decisions to Make

• Choose a new employee from a set of applicants to best achieve the objectives

Uncertain Events

• Applicants’ future performance on the attributes that affect objectives