I
Decision-Making Applications
C
hapters 12 through 17 examine a number of important applications that
are amenable to the types of analysis developed in the first sections of this
book. The settings considered include decisions under uncertainty, nego-
tiation and competitive bidding, and decisions involving constraints.
In the first eleven chapters of the text, we presumed that managers can
estimate a product’s revenues, costs, and profits with certainty. While this
may be true for long-time products that have steady, established sales and
costs records, it is certainly not the case for new technologies, new products,
or even old products facing rapidly changing demand conditions. Decision
making under uncertainty is the heart of Chapters 12 and 13. Managers
must work hard at foreseeing changes in market demand, costs, competi-
tors’ actions, and government policies. Indeed, management is sometimes
referred to as “the art of making decisions with too little information.”
Managers must measure and weigh competing risks and determine which
risks are acceptable. Chapter 12 shows how managers can structure deci-
sions in high-risk situations. Chapter 13 examines the value of acquiring new
information about relevant risks before making an important decision and
also analyzes the problem of optimal search for the best alternative.497
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