Decision theory

Decision theory (or the theory of choice) is the study of an agent's choices. Decision theory can be broken into two branches: normative decision theory, which analyzes the outcomes of decisions or determines the optimal decisions given constraints and assumptions, and descriptive decision theory, which analyzes how agents actually make the decisions they do.

Quotes

• Decision theory, as it has grown up in recent years, is a formalization of the problems involved in making optimal choices. In a certain sense — a very abstract sense, to be sure — it incorporates among others operations research, theoretical economics, and wide areas of statistics, among others.
  • Kenneth Arrow, The Economics of Information (1984) p. 55

• "Interactive Decision Theory" would perhaps be a more descriptive name for the discipline usually called Game Theory.
  • Robert Aumann (2000) Collected Papers: Vol. 1. p. 47

• The researcher hoping to break new ground in the theory of experimental design should involve himself in the design of actual experiments. The investigator who hopes to revolutionize decision theory should observe and take part in the making of important decisions.
  • George E. P. Box, Science and Statistics (1976), p. 792

• Linear programming is viewed as a revolutionary development giving man the ability to state general objectives and to find, by means of the simplex method, optimal policy decisions for a broad class of practical decision problems of great complexity. In the real world, planning tends to be ad hoc because of the many special-interest groups with their multiple objectives.
  • George Dantzig (1983) "Reminiscences about the origins of linear programming". In: Mathematical programming : the state of the art. New York, 1983, p. 78-86.

• Pascal is called the founder of modern probability theory. He earns this title not only for the familiar correspondence with Fermat on games of chance, but also for his conception of decision theory, and because he was an instrument in the demolition of probabilism, a doctrine which would have precluded rational probability theory.
  • Ian Hacking The Emergence Of Probability, Chapter 3, Opinion, p. 23.

• Decision theory can be pursued not only for the purposes of building foundations for political economy, or of understanding and explaining phenomena that are in themselves intrinsically interesting, but also for the purpose of offering direct advice to business and governmental decision makers. For reasons not clear to me, this territory was very sparsely settled prior to World War II. Such inhabitants as it had were mainly industrial engineers, students of public administration, and specialists in business functions, none of whom especially identified themselves with the economic sciences...
  • Herbert A. Simon, "Rational decision making in business organizations." Nobel Prize lecture 1978, published in: The American economic review 69(4) (1979): 493-513;

See also

• Decisions
• Decision-making
• Game theory
• Management science