What is Decision Theory?
Decision theory is an interdisciplinary area of study that concerns mathematicians, statisticians, economists, philosophers, managers, politicians, psychologists and anyone else interested in analyses of decisions and their consequences. The basic formalism of decision theory is the payoff table, which maps mutually exclusive decisions to mutually exclusive states of nature. For example, “Decision X leads to Outcome Y”, “Decision Y leads to Outcome Z”, and so on. When the set of outcomes corresponding to any given decision is not known, we refer to this situation as decision under uncertainty, the field of study which dominates decision theory. Outcomes in decision theory are usually assigned utility values. For example, from the point of view of a military planner, the death of 1000 men on the battlefield might be assigned a negative utility of 1000, and the death of 500 a negative utility of 500. Possible outcomes in a decision theory problem may be positive, negative or both. Utilit
