Description: Begins with development of tools for decision-making under uncertainty: construction and analysis of decision trees and influence diagrams using decision analysis software; quantification of judgments; risk preferences; and degree of risk aversion via subjective expected utility. Generalizations of expected utility theory to problems in which consequences are descriptively complex and multi-attributed are illustrated with applications in engineering and management. The real options approach to strategic choice is treated as a logical extension of decision analysis that employs financial market information to determine and value optimal strategies when managers can flexibly adapt to an unfolding, uncertain future. Methods for integrating decision analysis and option pricing using financial market information are illustrated with applications to a wide variety of cases, such as valuing start-ups, valuing manufacturing flexibility, valuing new technologies, valuing oil and gas exploration, and development options. A project report is required in place of a final exam.
Course #: 15.065
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