DECS-433: Decisions and Risk

• Course materials
  Course overview
  Course requirements
  

• Week 1: Introduction. The language of probability.
  Approaching complex problems via decomposition
  Probability diagrams
  Counting
  Preparing Excel for use at Kellogg
  Simulation
  KSim - A simulation tool
  Example: Adverse selection
  Mini-Quiz #1
  Mini-Quiz answers
  

• Week 2: Probability and learning.
  Updating beliefs
  Notes on probability
  Computing probabilities
  Probability exercises
  Odds exercises
  Examples: Birthdays, bags of balls, "Let's Make a Deal!"
  Mini-Quiz #2
  Mini-Quiz answers
  

• Week 3: Random variables and expectations.
  Notes on random variables and expected value
  Exercises on expectations
  Example: Airline overbooking (the single-period inventory problem)
  Example: A 5-dice game (and optional material on matrix multiplication)
  Mini-Quiz #3
  Mini-Quiz answers
  

• Week 4: Random variables and variability.
  Notes on variability
  Variability calculations
  A graphical perspective on correlation
  Exercises on variability
  Comments on the role of spreadsheets in decision analysis
  Examples of optimization using Excel's "Solver" add-in
  Example: Minimum-risk portfolios
  Mini-Quiz #4
  Mini-Quiz answers
  

• Week 5: Commonly-encountered probability distributions.
  Notes on the binomial, geometric, and normal distributions (exponential, Poisson, uniform, and beta distributions optional)
  Spreadsheet notes on the binomial and geometric distributions
  Exercises on the binomial and geometric distributions
  The Central Limit Theorem (demonstration spreadsheet)
  The cumulative normal distribution (demonstration spreadsheet)
  Exercises on the normal distribution
  Useful Excel probability functions
  Example: Adverse selection, with the normal distribution
  Mini-Quiz #5
  Mini-Quiz answers
  

• Week 6: Examples and applications.
  Monitoring a production process
  The single-period inventory problem
  Sample exam: Miscellany
  Sample exam: Extreme Products Unlimited, Ltd.
  Sample exam: ATM operations
  Problems for your midterm
  

• Week 7: Midterm examination. Decision trees.
  Notes on decision trees
  Connecticut Electronics
  Exercises on decision trees
  Mini-Quiz #6
  Mini-Quiz answers
  

• Weeks 8 and 9: Statistics, and the language of estimation.
  

  • Reading assignment for Week 8:
    • "An overview of statistics"
    • "Notes on estimation" through "estimation terminology"
    • "Lecture slides," first page
    • "Confidence intervals," read and play around
    • "Degrees of freedom," first tab
    • "Exercises on estimation," all problems except "advertising sales" (b)-(f)

  An Overview of Statistics

  • Estimation
    Notes on estimation
    Lecture slides on estimation
    Confidence intervals (demonstration spreadsheet)
    Degrees of freedom (demonstration spreadsheet)
    Exercises on estimation

  Mini-Quiz #7
  Mini-Quiz answers

  • Sampling
    Notes on sampling (including exercises)
    Presidential polls
    A Primer on Polls
    A few sampling examples
    Dealing with nonresponse bias
    
  • Hypothesis Testing
    Notes on hypothesis testing
    An hypothesis-testing tool
    [An hypothesis-testing paradigm, showing the details behind the "tool"]
    Exercises on hypothesis testing with answers (spreadsheet)
  • Statistics Summary

  Mini-Quiz #8
  

• Week 10: Simulation.
  A research-and-development race
  Contract bidding
  Exercises on simulation
  Commercial "simulation optimization" software:
  • Risk Solver from the Solver folks
  • Decision Optimizer from the Crystal Ball people
  • Risk Optimizer from the @Risk clan
  
  Summary of expected spreadsheet skills