Management Science

Takehome Exam for Chapter 6

Name: Carlo S. Morente

Course/Block/Year: BSA 1-2

Part I. Essay

1. Discuss why we need to make better decisions and how can we make sure that we
have made the right decisions.
Making decisions is a fundamental aspect of our lives, shaping the outcomes we
experience and the paths we tread. Whether in personal, academic, or professional field,
the ability to make good decisions holds immense significance. It is natural to want to
ensure that we have made the right choices. While there are no definite methods, certain
strategies can significantly increase the likelihood of making the right decisions.
Good decision making is crucial in reaching our desired outcomes. When we carefully
weigh our options and choose the best course of action, we increase the likelihood of
success. Whether it's excelling academically, advancing in our careers, or fulfilling personal
aspirations, making informed choices guides us toward achieving our goals. When we make
good decisions, we feel more confident and in control of our lives. People trust and respect
us when we consistently make sound decisions. This helps us build strong relationships and
a positive reputation.
In response to that, to make sure that we make the right decision, it is crucial to have a
clear understanding of our goals and priorities. By aligning our choices with what truly
matters to us, we enhance the chances of making decisions that lead to satisfaction and
fulfillment. Making informed decisions requires gathering relevant information. Research,
ask questions, consult experts, or seek advice from trustworthy sources. The more
knowledge we have about the options available to us, the better equipped we are to make
the right decision.
While absolute certainty is elusive, employing thoughtful strategies can enhance the
chances of making the right decisions. By clarifying goals, gathering information, evaluating
options, trusting intuition, considering outcomes and risks, seeking advice, conducting
experiments, and reflecting on outcomes, we can increase our confidence in the decisions
we make. It is important to remember that decision-making is a continual learning process,
and embracing both successes and failures helps us grow and refine our decision-making
abilities.
 2. Discuss the importance of information in decision-making.
In decision-making, information serves as a key, providing essential insights and
knowledge that guide individuals and organizations in making informed choices. Whether it
is a personal, professional, or societal decision, the availability and effective utilization of
information play a vital role in the decision-making process. Information serves as the
foundation upon which decisions are built. It provides the necessary facts, data, and context
about the options, potential outcomes, and the surrounding environment. This knowledge
allows decision makers to understand the situation comprehensively and make choices
based on a solid understanding of the available information.
Information helps decision makers to identify opportunities and constraints. It provides
valuable insights into available resources, market conditions, technological advancements,
and other factors that influence the decision-making process. By considering this
information, decision makers can identify growth opportunities, anticipate limitations, and
make decisions that leverage available resources effectively. Decision making also often
involves uncertainty and risk. Information plays a crucial role in reducing uncertainty by
providing insights into the likelihood and potential outcomes of different choices. It helps
decision makers understand the potential consequences and make decisions that are more
likely to lead to favorable results or mitigate potential risks. Information facilitates rational
decision making by enabling individuals to assess situations objectively. It allows decision
makers to analyze data, facts, and evidence, reducing reliance on emotions or intuition
alone. By considering relevant information, decisions can be made based on logical
reasoning, minimizing the influence of biases or personal preferences.
Information plays a critical role in decision making, serving as a catalyst for informed
choices. It provides the foundation for decision making by offering facts, data, and context.
Through analysis and evaluation, it enables the identification of opportunities and
constraints, minimizes uncertainty, enhances rationality, and more. Furthermore,
information supports effective communication and collaboration, allowing decision makers
to harness the collective knowledge and expertise of individuals involved. By embracing the
power of information, decision makers can navigate complexities and make choices that
lead to favorable outcomes in personal, professional, and societal realms.

3. Give examples of situations under each decision-making environment.

Decision-making under certainty means that the parameters and outcomes of the
decision are clear and predetermined, allowing individuals to make choices with a high level
of certainty. Decision-making under certainty provides a sense of reliability and
predictability, where individuals can make informed decisions with minimal uncertainty or
ambiguity. An example of this is when using public transportation, such as buses or trains,
the schedules and routes are predetermined, providing certainty in terms of arrival and
departure times.
factors that are unpredictable, unknown, or subject to various external influences. In
decision-making under uncertainty, individuals must carefully analyze available information,
consider potential scenarios, and assess risks to make the best possible decision given the
uncertainties involved. An example of this is when choosing a research topic, the outcome,
availability of data, and potential discoveries are uncertain, making it challenging to predict
the exact findings and implications of the research.
Decision-making under risk however, involves known probabilities and measurable
risks. In decision-making under risk, individuals can assess the likelihood of different
outcomes based on available data, historical patterns, and risk assessment techniques. It
allows for a more informed evaluation of potential risks and rewards, aiding in making
decisions that strike a balance between risk and potential return. For example, when
deciding on a college or university, factors such as academic reputation, graduation rates,
and tuition costs introduce risks that can be evaluated to determine the probability of
educational success and future career prospects.
Part II. Decision theory

Alternatives Low Demand High Demand

Proposal A (P2,000) P7,500
Proposal B P3,000 P5,000
Proposal C P2,000 P6,500

1. Which proposal should you choose under Maximax approach?

The decision maker sees that the most optimistic payoff is P7,500. He/she will
choose Proposal A.
Answer: Proposal A
2. Which proposal should you choose under Minimax approach?
The decision maker sees that there are three worst case scenarios (Low Demand):
(P2,000), for A, P3,000 for B, and P2,000 for C. He/she would prefer the best of the worst.
There for choose Proposal B
Answer: Proposal B
3. Which proposal should you choose under Laplace approach?

Alternatives Weighted Payoff Expected Value

Proposal A (P2,000) + P7,500 / 2 P2,750
Proposal B P3,000 + P5,000 / 2 P4,000
Proposal C P2,000 + P6,500 / 2 P4,250

Since P4,250 is the higher weighted payoff, the decision maker will choose Proposal C.
Answer: Proposal C
4. Which proposal should you choose under Maximax regret approach?

Alternatives Low Demand High Demand Maximum

regret
Proposal A P3,000 - (P2,000) P7,500 - P7,500 P5,000
Proposal B P3,000 - P3,000 P7,500 - P5,000 P2,500
Proposal C P3,000 - P2,000 P7,500 - P6,500 P2,000

The decision maker would choose Proposal C because it has the lowest regret.
Answer: Proposal C