Decision theory


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Decision theory is the discipline in which the mechanisms and consequences of human decisions are investigated. The “descriptive” arm of decision theory describes decision processes as they take place in reality, while the “prescriptive” or “normative” arm attempts to develop instructions for, or aids to, decision-making that are based upon rational and logical models. Of central importance for the normative models of decision theory is the fact that human decisions are always context-dependent and presuppose the availability of information. The factors that accompany this, such as uncertainty and risk, place restrictions – sometimes major ones – upon the rationality of human decisions. For this reason, one frequently attempts to render decision processes under conditions of “restricted rationality” more transparent with the help of statistical analyses.

The social scientist Herbert A. Simon is generally acknowledged to be the founder of behavioural decision theory. Statistical decision theory was pioneered by Abraham Wald, and game-theoretical decision theory by Leonid Hurwicz.

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