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Decision Theory

The term Decision theory refers to a set of principles and logical statements that have been designed for the purpose of facilitating the decision making process. It does so by tackling the issue of choosing from a group of alternatives by way of understanding their potential consequences, encompassing, for example, the study of cause and effect, complex dynamics, making informed choices and selecting the lesser of evils. It is a body of knowledge that involves analytical methodologies of varying levels of formality that can be applicable to situations of certainty, uncertainty or risk.

These categories refer to the predictability or probability that the situations pose. More specifically, “certainty” refers to the sureness of only one specific consequence-type ensuing from each alternative, “uncertainty” refers to the possibility of various types of consequences stemming from an alternative but with their probabilities of occurrence being known, while “risk” refers to the possibility of various consequences stemming from an alternative but with their probabilities of occurrence being unpredictable.

Decision theory is considered to be interdisciplinary in that it employs methods and knowledge from the fields of statistics, economics, mathematics, psychology, management and philosophy.

Web Resources On Decision Theory

Wikipedia: Decision Theory
Principia Cybernetica: Decision Theory

Book Resources On Decision Theory

Elemental Decision Theory by Herman Chernoff, Lincoln Moses
Statistical Decision Theory and Bayesian Analysis by James O. Berger

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