Title
MATHEMATICAL MODELLING OF DECISION-MAKING APPLICATION TO INVESTMENT
Authors
Abstract
In this paper, the mathematical modelling of decision-making problems based on probabilisticgraphical models is presented. The models, in addition to random variables, also include
decision and profit variables. The proposed decision models contain one or more decisions and
their purpose is to assist the decision maker in choosing the best decision under conditions of
uncertainty. The techniques used include modelling and evaluating decision trees, as well as
evaluating, modelling and presenting the algorithm of influence diagrams (as the expansion of
the Bayesian networks) to show the communication structure of the problem and thus provide
a coherent presentation with an effective evaluation. The limited memory influence diagram
and dynamic decision networks (as a dynamic Bayesian network) have also been developed to
avoid the limitations of the influence diagram limitation. An application of the exposed models
is presented in investment decision-making.
Keywords
Decision models, Decision tree, Influence diagram, Bayesian network, Investment decision-making
Classification-JEL
B16, C52, D81
Pages
1-14