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Decision Analysis for Managers by David Charlesworth

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Chapter 6

Uncertainty Assessment

The Boundary Between Known and Unknown

At this point, we have completed framing our problem. We understand our objectives, the strategic decisions we have to make, and have started to consider the uncertainties associated with our situation. Before we can start to estimate NPV, we have to assess the risks and uncertainties we’ve drawn on our influence diagram.

The process we used to quantify the state-of-knowledge about uncertainties associated with our problem is called assessment or expert assessment. In some cases, we can use historical data to augment our assessments. The quality of our analysis is completely dependent on the quality of our assessments. Without good assessments, further modeling or analysis ...

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