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    7a Decision Theory

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    Haider Ali
    Decision theory is the study of how people make choices and decisions when outcomes are uncertain. It has two main branches: normative decision theory, which determines the optimal decision based on outcomes, and optimal decision theory, which examines why individuals make the decisions they do. Decision theory helps with understanding choices by professionals, consumers, and voters when facing uncertainty in consequences, states, or actions. It is widely applied in business, economics, statistics, science, and politics.

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    7a Decision Theory

    Uploaded by

    Haider Ali
    8 views12 pages
    Decision theory is the study of how people make choices and decisions when outcomes are uncertain. It has two main branches: normative decision theory, which determines the optimal decision based on outcomes, and optimal decision theory, which examines why individuals make the decisions they do. Decision theory helps with understanding choices by professionals, consumers, and voters when facing uncertainty in consequences, states, or actions. It is widely applied in business, economics, statistics, science, and politics.

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    Decision theory is the study of how people make choices and decisions when outcomes are uncertain. It has two main branches: normative decision theory, which determines the optimal decision based on outcomes, and optimal decision theory, which examines why individuals make the decisions they do. Decision theory helps with understanding choices by professionals, consumers, and voters when facing uncertainty in consequences, states, or actions. It is widely applied in business, economics, statistics, science, and politics.

    Copyright:

    © All Rights Reserved
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    Download as pptx, pdf, or txt
    8 views12 pages

    7a Decision Theory

    Uploaded by

    Haider Ali
    Decision theory is the study of how people make choices and decisions when outcomes are uncertain. It has two main branches: normative decision theory, which determines the optimal decision based on outcomes, and optimal decision theory, which examines why individuals make the decisions they do. Decision theory helps with understanding choices by professionals, consumers, and voters when facing uncertainty in consequences, states, or actions. It is widely applied in business, economics, statistics, science, and politics.

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    Decision Theory

    Ahmed Ata Khan


    Decision Theory
    Decision theory is a general approach to
    decision making when the outcomes
    associated with alternatives are often in
    doubt.
    It helps operations managers with
    decisions on process, capacity, location,
    and inventory because such decisions are
    about an uncertain future.
    Decision theory can also be used by
    managers in other functional areas.
    Decision Theory

    Decision theory, in statistics, a set of


    quantitative methods for reaching
    optimal decisions.
    A solvable decision problem must be
    capable of being tightly formulated
    in terms of initial conditions and
    choices or courses of action, with
    their consequences.
    Importance of Decision Theory
    Decision theory is the study of a person or agents'
    choices. The theory helps us understand the logic
    behind the choices professionals, consumers.
    By better understanding the different types of
    customers, businesses can be better equipped to
    develop, or even voters make.
    Types & Applications
    The choices come with consequences and are usually
    discussed in two separate but distinct branches. The
    branches consist of Normative Decision Theory and
    Optimal Decision Theory.
     What makes an optimal decision?
     Who that optimal decision-maker may be, and how they
    can come to that decision.
     How people “ought” to make decisions in certain
    scenarios is part of this study as well.
     How the two fields differ?
     How decision theory plays a part in our everyday lives?

    The field of decision theory is often studied in business


    schools, in economics & statistics, in the scientific realm,
    with biologists and political scientists as well.
    Normative Decision Theory

    Analyzes the outcomes of decisions


    Determines the optimal decision
    based on outcomes
    The theory centers around the ideal
    decision-maker for a specific situation
    “What should the person making the
    decision do to make this decision?”
    Optimal Decision Theory

    The investigation and analysis of


    why individuals and agents of choice
    make the decisions that they do
    Looks at the assumptions made by
    individuals making the decisions and
    the assumptions they make when
    deciding
    Uncertainity in Decision Making
    In decision making that involves risk, the decision
    maker is aware of the potential results and the
    likelihood of risks materialising.
    Uncertainty refers to scenarios in which this
    information is barely available.
    A decision under uncertainty is when there are
    many unknowns and no possibility of knowing
    what could occur in the future to alter the outcome
    of a decision.
    We feel uncertainty about a situation when we
    can't predict with complete confidence what the
    outcomes of our actions will be.
    Risk vs Uncertainity &
    Types of Uncertanities

    Risk is the situation under which the decision


    outcomes and their probabilities of occurrences
    are known to the decision-maker, and uncertainty
    is the situation under which such information is
    not available to the decision-maker.
    There are four major types of uncertainties in
    decision-making problems:
    Data Uncertainty
    Prediction Uncertainty
    Judgment Uncertainty
    Action Uncertainty.
    Summary
    Decision theory is the study of a person or agents’
    choices. It helps us understand the choices
    professionals, consumers, or even voters make when
    coming to a decision.
    There are two branches of decision theory –
    Normative Decision Theory and Optimal Decision
    Theory.
    There are three different types of uncertainty that can
    be found in decision-making theory –States,
    Consequences, and Actions.
    Understanding how decision theory works and its
    implications for consumer behavior is an excellent
    tool for marketers to utilize.
    Thought of the Week

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