Decision theory
Decision Theory
Decision theory (pronounced: /dɪˈsɪʒən θɪəri/) is a branch of Applied Mathematics that deals with the process of making choices among different alternatives. It is a fundamental concept in the fields of Statistics, Economics, and Psychology.
Etymology
The term "decision theory" is derived from the Latin word decidere, meaning "to decide", and the Greek word theoria, meaning "contemplation" or "speculation".
Definition
In the broadest sense, decision theory involves the study of mathematical models and methodologies that can be used to make optimal or rational decisions. It is often associated with the concept of Utility Theory, which suggests that individuals make decisions based on the perceived utility or benefit of the different options available to them.
Related Terms
- Expected Utility Hypothesis: A key concept in decision theory, which posits that a rational individual will choose the option with the highest expected utility.
- Game Theory: A branch of mathematics that studies strategic interactions, where the outcome for an individual depends not only on their own decisions but also on the decisions of others.
- Risk Analysis: The process of identifying and assessing potential risks in order to make informed decisions.
- Bayesian Decision Theory: A decision-making framework that combines prior knowledge and observed data to make decisions.
- Decision Tree: A graphical representation of possible solutions to a decision based on certain conditions.
See Also
External links
- Medical encyclopedia article on Decision theory
- Wikipedia's article - Decision theory
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