Decision Theory: An Overview

Abstract

Decision theory (see also Decision Theory: An Introduction) is the systematic study of goal-directed behavior under conditions when different courses of action (options) can be chosen. The focus in decision theory is usually on the outcome of decisions as judged by pre-determined criteria or, in other words, on means-ends rationality. Decision theory has developed since the middle of the twentieth century through contributions from several academic disciplines. In this overview over fundamental decision theory, the focus will be on how decisions are represented and on decision rules intended to provide guidance for decision-making. Finally two paradoxes will be presented in order to exemplify the types of issues that are discussed in modern decision theory. The Representation of Decisions The standard representation of a decision problem requires that we specify the alternatives available to the decision-maker, the possible outcomes of the decision, the values of these outcomes, and...