Simulation of an objective variable’s probability distribution

Franz Eisenführ (), Martin Weber and Thomas Langer ()
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Thomas Langer: University of Münster

Chapter Chapter 8 in Rational Decision Making, 2010, pp 205-233 from Springer

Abstract: Summary Knowledge of the corresponding probability distributions is necessary for rational decisions between alternatives with uncertain outcomes.. An objective variable’s distribution can be specified directly only in simple cases. if there is more than one uncertain factor influencing the objective variable, it is sensible to estimate the distributions of the influencing factors first and then derive the distribution of the objective variable afterwards. It is often not possible to determine the resulting objective variable’s distribution analytically. Using simulation as a tool, however, one can approximate this distribution with sufficient accuracy. Today, such simulations can be executed easily with common spreadsheet programs. Simulations become more complex if dependencies exist between the influencing factors that need to be considered in the simulation model.

Date: 2010
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DOI: 10.1007/978-3-642-02851-9_8

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