Introduction to Management

Science
Wednesday 23rd November 2022
Recap
• Important dates
• Third term exam (Monday 5th December)
• Queuing Models
• Decision Analysis
• Payoff matrices
• Non-probabilistic methods
• Probabilistic methods
• Decision Trees
• Final Project Deliverable (Sunday 4th December 11:55pm on LMS)
• Final model and slides are due on the 4th
• Final 5-minute presentation will take place (Saturday 10th December – ALL DAY) – ROOM
203
Recap
• Evaluating regret
• Minimax regret
• Probabilistic methods
• EMV – expected monetary value
• EOL – expected opportunity loss/ regret
• Decision Trees
Sample Question
MicroProducts, Incorporated (MPI) manufactures printed circuit boards for a major PC
manufacturer. Before a board is sent to the customer, three key components must be tested. These
components can be tested in any order. If any of the components fail, the entire board must be
scrapped. The costs of testing the three components are provided in the following table, along with
the probability of each component failing the test:

Component Cost of Test Probability of Failure

X $1.75 0.125
Y $2.40 0.075
Z $2.00 0.140

Create a decision tree for this problem and a) determine the order in which the components should
be tested and, b) compute the expected cost of performing the tests in this sequence.
Challenge Question
The greatest chess player, Garry Kasparov, is playing former chess grandmaster,
Anatoly Karpov, in a two-game chess match. Winning a game scores 1 match point,
and drawing a game scores ½ match point. After the two games are played, the
player with more match points is declared the champion. If the two players are tied
after two games, there is a “sudden death” playoff, i.e. they continue playing until
someone wins a game (the winner of that game will then be the champion). During
each game, Karpov can play one of two ways: boldly, or conservatively. If he plays
boldly, he has a 45% chance of winning the game and a 55% chance of losing the
game. If he plays conservatively, he has a 90% chance of drawing the game and a
10% chance of losing the game. Note that if the match enters a “sudden death”
playoff, his obvious strategy is to play boldly at that time, since has no chance to win
otherwise. What strategy should Karpov adopt? Draw a decision tree to recommend
the strategy and write the EMV of his decision
“Homework”
• Practice decision trees (on paper and using PrecisionTree Excel Add-
in)