Handbook of Decision Analysis

CHAPTER THREE

Foundations of Decision Analysis

GREGORY S. PARNELL and STEVEN N. TANI

Information is a source of learning. But unless it is organized, processed, and available to the right people in a format for decision making, it is a burden, not a benefit.

—William Pollard

3.1 Introduction

3.2 Brief History of the Foundations of Decision Analysis

3.3 Five Rules: Theoretical Foundation of Decision Analysis

3.4 Scope of Decision Analysis

3.5 Taxonomy of Decision Analysis Practice

3.5.1 Terminology

3.5.2 Taxonomy Division: Single or Multiple Objectives

3.5.3 Single-Objective Decision Analysis

3.5.4 Multiple-Objective Decision Analysis

3.5.5 Taxonomy Division: Addressing Value Trade-Offs and Risk Preference Separately or Together?

3.5.6 Taxonomy Division: Nonmonetary or Monetary Value Metric?

3.5.7 Taxonomy Division: Degree of Simplicity in Multidimensional Value Function

3.6 Value-Focused Thinking

3.6.1 Four Major VFT Ideas

3.6.2 The Benefits of VFT

3.7 Summary

Key Terms

Acknowledgments

References

3.1 Introduction

In Chapter 1, we state that decision analysis is a social-technical process to create value. In Chapter 2, we identify the challenges that decision makers face in making difficult decisions for organizations and stakeholders. We also discuss the decision traps, cognitive biases and motivational biases faced by individuals and groups. Decision analysis is an operations research/management science (OR/MS) discipline that is designed to help decisions makers faced with difficult ...