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Foundations of Decision Theory

  1. Louis Anthony Cox Jr.

Published Online: 14 JAN 2011

DOI: 10.1002/9780470400531.eorms0335

Wiley Encyclopedia of Operations Research and Management Science

Wiley Encyclopedia of Operations Research and Management Science

How to Cite

Cox, L. A. 2011. Foundations of Decision Theory. Wiley Encyclopedia of Operations Research and Management Science. .

Author Information

  1. University of Colorado, Cox Associates and Department of Mathematical and Statistical Sciences, Denver, Colorado

Publication History

  1. Published Online: 14 JAN 2011

Abstract

Although many specific normative decision models and techniques for improving or optimizing decisions have been proposed, most decision-analytic methods rest on a simple, common conceptual foundation. The basic elements are a set of possible alternatives that the decision maker must choose among; a set of states that may also affect the consequences of the choice; and a consequence set of different, nonindifferent, possible outcomes that the decision maker cares about. Decision analysis helps the decision maker use beliefs about states and preferences for consequences to identify preferred choices or decisions in the opportunity set. This article discusses these foundations and how they can be applied and extended to support difficult decisions.

Keywords:

  • decision analysis foundations;
  • stochastic dominance expected utility theory;
  • decision models;
  • preferences for flexibility