BUS 221 Lecture 2: Decision Theory
11 Mar 2017
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In some cases, different possible states are relevant for each act you might choose. Your house burns down; your house doesn"t burn. You choose (act) to sell apples instead of eggs. To put a decision situation into mathematical terms is to build a model" of it. Elements of a decision problem: outcomes value/utility to you, acts. You (your team) needs to assess what the options are. A rule like maximize utility only makes sense relative to some model of the decision problem. Fire dave; don"t fire dave; put dave on probation. Keep an open mind with regards to options you haven"t considered: states. States are ways the world could be or what could end up happening. In other cases, the same possible states are relevant, regardless. Your list of outcomes is a list of all combinations of acts & (relevant) states. It will be longer then either the list of acts or the list of states.
