Optimal Decisions

After we have been able to prepare a payoff or loss table it is easy to arrive at a decision and to select a best course of action. It would be desirable to choose that action which maximize payoffs or minimize opportunity losses for all states of nature. If such action exists, the action is called uniformly best action. Unfortunately, such uniformly best action exists very seldom, for the remaining states of nature. For instance, consider illustration 1, where it is clear that the a3 is best when the state of nature θ3. On the other hand, the same action is worst when the state of nature is θ1 and none of the actions is found to be uniformly best. Hence, the decision-maker needs some criterion or principle or making a choice amongst alternative actions. We shall mention here some important principle or criteria to select an optimal action. An action is said to be optima if its payoff is best according to the criterion or principle under consideration.

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