Decision theory

The decision theory is in applied probability theory, a branch to evaluate the consequences of decisions. The decision theory is often used as a business management tool. Two well-known methods are the simple cost-benefit analysis (NWA ) and the precise Analytic Hierarchy Process (AHP ). In these methods, criteria and alternatives are presented, compared and evaluated in order to find the optimal solution of a decision or problem can.

Subregions

There are, in decision theory, a distinction into three sub- areas:

The practical application of prescriptive decision theory is called decision analysis. These methods and software are being developed to aid people in making decisions.

The basic model of ( normative ) decision theory can be represented in a result matrix. This included are the decision field and the target system. The decision box includes:

  • Action space: set of possible alternative courses of action
  • State space: set of possible environment states
  • Result Function: Assign a value for the combination of action and state.

Certainty and uncertainty

A common problem is that the true state of the environment is not known. This is called uncertainty. The contrast is a situation of security in which the state of the environment is known. It can make the following breakdown:

  • Decision under security: The incoming situation is known. ( Deterministic decision model )
  • Decision under uncertainty: It is not known with certainty what the environmental situation occurs, one further distinction is made in: Decision under risk: The probability for the potentially occurring environmental situations is known. ( Stochastic decision model )
  • Decision under uncertainty: one knows only possibly occurring environmental situations, but not their probabilities of occurrence.

The (single or multi-stage ) decision-making process along with the various consequences can be graphically represented as a decision tree.

Demarcation

They are not applicable decision theory, if a decision-maker with a rationally acting opponent ( as a competitor ) compete, which can also incorporate the respective competition in his decision. The decision may also use the probability theory alone can not be displayed: The behavior of the opponent is not true deterministic, but not random. In such a case, the game theory is used.

The decision theory has recently been used in the evaluation of investments. Under the name of real option decision trees (or options) is used, the value of flexibility in terms of decisions - that is, the option to decide ( at a later date ) - to assess.

Collective decisions of a group of individuals are content of social choice theory.

Evaluation (disambiguation) Cost–utility analysis Axiom Empirical research Decision aids Decision theory#Choice under uncertainty Principle of indifference Real options valuation classification Cybernetics Group decision-making Integrated Authority File
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