May 2025
Intermediate to advanced
400 pages
13h 54m
English
book
Handbook of Decision Analysis, 2nd Edition
by Gregory S. Parnell, Terry A. Bresnick, Eric R. Johnson, Steven N. Tani, Eric Specking
Content preview from Handbook of Decision Analysis, 2nd Edition
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Appendix AProbability Theory
A reasonable probability is the only certainty
—E.W. Howe
A.1 Introduction
This appendix is not intended to be a comprehensive discourse on probability and statistics. For that, see (Anderson, 2020) or (Runger, 2010). Rather, we here present a number of key ideas from probability theory that every decision practitioner should know.
A.2 Distinctions and the Clairvoyance Test
A fundamental requirement for addressing the important uncertainties in a decision is to create distinctions that are both clear and useful. A distinction is a separation of the universe of possibilities (outcomes) into two or more subsets. By definition, these subsets will be mutually exclusive (i.e., a possibility cannot be in more than one subset) and collectively exhaustive (i.e., every possibility must be in a subset). An example of a distinction is whether or not a new product achieves high sales volume. This distinction ...
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