Chapter 19

Statistical Decision Theory

LEARNING OBJECTIVES

After studying this chapter, you should be able to

  • identify decision alternatives, the states of nature and payoff associated with every possible combination of decision alternatives and states of nature.

  • revise subjective probability values included in the formulation of the decision problem.

  • identify the one best decision alternative for decision situation of uncertainty and risk.

  • develop managerial judgement to utilize the subjective as well as objective interpretation of probabilities in decision making.

Take time to deliberate, but when the time for action arrives, stop thinking and go on.

—Andrew Jackson

19.1 INTRODUCTION

Statistical methods discussed so far to draw inferences ...

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