Utility and Loss
In evaluating the consequences of possible actions, two major problems are encountered. The first is that the values of the consequences may not have any obvious scale of measurement. For example, prestige, customer goodwill, and reputation are important to many businesses, but it is not clear how to evaluate their importance in a concrete way. A typical problem of this nature arises when a relatively exclusive company is considering marketing its “name” product in discount stores. The immediate profit which would accrue from increased sales is relatively easy to estimate, but the longterm effect of a decrease in prestige is much harder to deal with.
KeywordsUtility Function Decision Rule Loss Function Decision Theory Utility Theory
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