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Managerial Decision Analysis.

Managerial Decision Analysis Reviewers: Patrick L. Brockett and Antoine Laurence, The University of Texas at Austin.

Decision Analysis is the result of centuries of thoughs about risk and human behavior. This field has still many more steps to climb, although major improvements have been made in the last decades. Some of these thoughts about risk are directly applicable to insurance calculations and formulations, and the exposed decision methods can be important for risk management and insurance.

Managerial Decision Anaysis exposes the thoughts and concepts of decision analysis and objectively, in an unsophisticated manner. It is a quite exhaustive book, well upgraded with most of the latest developments in decision analysis. Samson is very honest, and presents decision analysis 'warts and all' when necessary. This book has an applied orientation, with a lot of practical cases. It is designed as a textbook for MBA students or for undergraduate courses in decision analysis, and can certainly be used as such: all the material is self-contained and very well explained. The level of mathematics never goes beyond the basic calculus level, which is standard for MBA textbooks. The book does suffers on and off, from being reduced to this level of mathematics, which necessarily limits the coverage in each subject, although all the diverse parts of the field are being covered. For instance, the book is weak on financial decision-making (like portfolio analysis and the mean-variance framework), perhaps since the students will frequently encounter such topics in other business classes. Also, useful references are sometimes missing (like V. S. Bawa, "Stochastic Dominance: A Research Bibliography," Management Science, Vol. 28 (1982), 698-712) which might make it harder to use as professional researcher's source book on the subject.

The book is divided into fifteen chapters. The material exposed in each chapter is supported by a case study, a summary, and, for the reader who can be disappointed by too quick an exposure to each problem, a paragraph summarizing the literature for further readings is also given. References are listed by chapter.

Samson chooses a decision tree approach to decision analysis. The first seven chapters define the basis concepts and expose the different decision frameworks; utility theory as opposed to expected value is well detailed, as well as subjective probabilities. The following chapters focus on the application of the methods in decision analysis and their limits: sensitivity analysis, simulation, probability assessment and Bayes theorem, the value of information, and behavioral aspects. Three chapters are devoted explicitly to decision support systems, while the last 200 pages are basically the documentation for the computer program that comes with the book ("arborist" on 1 IBM floppy disk). We have not tested the program.

For risk management and insurance research purposes, Managerial Decision Analysis can be useful as an introductory reference. The 'further readings' paragraphs are certainly a nice feature. Also, certain new material like influence diagrams or the analytic hierarchy (AHP) are described to some extent. The book is very objective, and covers extensively the biases and heuristics of human behavior. However, there are a few restrictions for a such a big volume which inhibit its use as a professional research tool. It is hard to find your way in this book: there is no clear guideline; the index is very limited; there is no author index; no description of the different tables, charts, and graphs; and the outline is really messy. It is not a book for insurance courses (nor was it intended to be), but is relevant to risk management professionals.
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Author:Brockett, Patrick L.; Laurence, Antoine
Publication:Journal of Risk and Insurance
Article Type:Book Review
Date:Sep 1, 1989
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