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Sensitivity of Decisions to Probability Estimation Errors

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  • Herbert H. Isaacs

    (System Development Corporation, Santa Monica, California)

Abstract

In making decisions on the basis of maximum expected utility, the decision maker is required to analyze the sensitivity of his decision to variability in probability estimation. This paper explores the general question of sensitivity to subjective probability estimates and derives an analytical representation of sensitivity. Some of the problems of applying sensitivity analyses are explored and a method suggested for resolving conflict of choice under conditions of high sensitivity. A sample problem is provided to illustrate application of the analytical techniques.

Suggested Citation

  • Herbert H. Isaacs, 1963. "Sensitivity of Decisions to Probability Estimation Errors," Operations Research, INFORMS, vol. 11(4), pages 536-552, August.
    • Handle: RePEc:inm:oropre:v:11:y:1963:i:4:p:536-552
    DOI: 10.1287/opre.11.4.536
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    Cited by:

    1. Hamed Mamani & Shima Nassiri & Michael R. Wagner, 2017. "Closed-Form Solutions for Robust Inventory Management," Management Science, INFORMS, vol. 63(5), pages 1625-1643, May.
    2. Gang Kou & Wenshuai Wu, 2014. "Multi-criteria decision analysis for emergency medical service assessment," Annals of Operations Research, Springer, vol. 223(1), pages 239-254, December.
    3. Ringuest, Jeffrey L., 1997. "LP-metric sensitivity analysis for single and multi-attribute decision analysis," European Journal of Operational Research, Elsevier, vol. 98(3), pages 563-570, May.
    4. Wright, Vic, 1983. "Some Bounds To The Relevance Of Decision Theory," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 27(3), pages 1-10, December.

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