SUMMARY As we have seen in this chapter 11 , Monte Carlo simulation is another approach to dealing with uncertainty in a decision situation. The basic approach is to construct a model that captures...

SUMMARY

As we have seen in this chapter 11 , Monte Carlo simulation is another approach to dealing with uncertainty in a decision situation. The basic approach is to construct a model that captures all of the relevant aspects of the uncertainty, and then to translate this model into a form that a computer can use. We focused on the development of such models within the environment of spreadsheets using @RISK to perform the simulation and analyze the results. We discussed the possibility of including dependence among probability distributions and the role of simulation in creating a requisite decision-analysis model.

Q1: Explain how Monte Carlo simulation may be useful to a decision maker.