On the Role of Mixed Strategies in Elementary Decision Analysis and Related Decision-Support-System Treatments

Abstract

We first demonstrate that mixed strategies are relevant in decision analysis for a maximin decision-maker quite apart from any game-theory considerations. This rectifies the apparent misconception that results from MS/OR textbooks which discuss mixed strategies only in the game-theory setting. Next we show an example of an implementable mixed strategy, by which we mean a mixed decision strategy which does not require randomization for its implementation. This application is to portfolio construction.

Keywords:

• decision-support systems
• elementary decision analysis
• insurance
• interactive optimization
• mixed strategies
• non-linear decision criteria
• portfolio planning
• spreadsheet models