Rational Decision Making: Predicting the Outcomes for Each Alternative.

A model and the data are used to predict the outcomes for each feasible alternative. As was suggested earlier, each alternative might produce a variety of out comes. Selecting a motorcycle, rather than a bicycle, for example, may make the fuel supplier happy, the eighbors unhappy, the environment more polluted, and one's savings account smaller.But, to avoid unnecessary complications, we assume that decision making is based on a single criterion for measuring the relative attractiveness of the various alternatives. If necessary,
one could devise a single composite criterion that is theweighted average of several different choice criteria.."

To choose the best alternative, the outcomes for each alternative must be stated in a comparable way.Usually the consequences of each alternativeare stated in terms ofmoney, that is, in the form of costs and benefits.

This resolution of consequences is done with all monetary and nonmonetary consequences. The consequences can also be categorized as follows:

Market consequences-where there are established market prices available Extra-market consequences-no direct market prices, so priced indirectly Intangible consequences-valued by judgment not monetary prices.

In the initial problems we will examine, the costs and benefits occur over a short time period and can be considered as occurring at the same time. In other situations the various costs and benefits take place in a longer time period. The result may be costs at one point in time followed by periodic benefits.We will resolve these in the next chapter into a cash flow diagram to showthe timing of the various costs and benefits.

For these longer-term problems, the most common error is to assume that the current situation will be unchanged for the do-nothing alternative. For example, current profits will shrink or vanish as a result of the actions of competitors and the expectations of customers; and trafficc on gestion normally increases over the years as the number of vehicles increases-doing nothing does not imply that the situation will not change.

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