Operations Management: Sustainability and Supply Chain Management, Twelfth Edition

Types of Decision-Making Environments

The types of decisions people make depend on how much knowledge or information they have about the situation. There are three decision-making environments:

1. LO A.3 Explain when to use each of the three types of decision-making environments

• Decision making under uncertainty

• Decision making under risk

• Decision making under certainty

Decision Making Under Uncertainty

When there is complete uncertainty as to which state of nature in a decision environment may occur (i.e., when we cannot even assess probabilities for each possible outcome), we rely on three decision methods:

1. Maximax: This method finds an alternative that maximizes the maximum outcome for every alternative. First, we find the maximum outcome ...