What is the theory of decision?
The theory of decision is an interdisciplinary area of study concerning mathematicians, statistics, economists, philosophers, managers, politicians, psychologists and anyone else who is interested in analyzing decisions and their consequences. The basic formalism of the theory of decision -making is a table of paycheck, which is mutually excluded by the exclusive decision on mutually exclusive states of nature. For example, "X decision leads to y", "decision leads to outcome", etc. If a set of results corresponding to any decision is not known, we refer to this situation as uncertainty, studying the theory of decision -making. For example, from the perspective of a military planner, the death of 1000 men on the battlefield can be assigned negative usefulness 1000 and death 500 negative usefulness 500. Possible results in the problem of decision can be positive, negative o.R both. The tasks of usefulness can be arbitrary and based on the views of the creator of the decision - for example, the death of 1000 men can be allocated greater thandouble the negative usefulness of death 500 men.
The expected usefulness of the decision is calculated as the sum of the probability of each possible result multiplied by the usefulness of each result. For example, the decision can lead to a positive usefulness of 100 with a probability of 75%and negative usefulness 40 with a probability of 25%. 75 % times 100 are equal to positive 75, 25 % times -40 equals -10. 75 minus 10 gives 65, which means that the total expected usefulness of the decision is 65.
It is clear that such quantitative accuracy is only possible for problems in which all numbers and probability are known in advance. This applies in some gambling problems such as poker. The theory of the decision provides a number of suggestion on how to estimate complex probability under uncertainty, most of which are derived from Bayes' conclusions.
The theory of decision can be normative or descriptive. Normative decision theory concerns theories about how we should decide if we want to maximize the expected usefulness. Descriptive theory of decision -making refers to theories about how we really decide. Descriptive decision -making theories are complex, often unnecessarily and help us to teach us how human decisions systematically go wrong. This has been associated with the related field of heuristics and distortion that has been in great fashion in the last decade in the economy.