ECN 204 Lecture Notes - Lecture 13: Decision Theory, Financial Statement, Rational Expectations
Document Summary
This takes the (cid:448)ie(cid:449) that e(cid:448)e(cid:374) if (cid:449)e (cid:272)a(cid:374)"t prepare the right fi(cid:374)a(cid:374)(cid:272)ial state(cid:373)e(cid:374)t, (cid:449)e (cid:272)a(cid:374) still tr(cid:455) to make them more useful. Under not ideal conditions it is not possible to read the value of the firm directly from the financial statements. De(cid:272)isio(cid:374) useful(cid:374)ess is (cid:272)o(cid:374)trasted (cid:271)(cid:455) the stewardship (cid:894)(cid:449)hi(cid:272)h is to report o(cid:374) the (cid:373)a(cid:374)age(cid:373)e(cid:374)t"s success or lack thereof; which is more past orientated than the role of helping predict the future) These questions help make financial statement info more useful. Decision usefulness apprach aids individuals to make rational decisions under uncertainty. Under conditions of uncertainty, this theory sets out a formal procedure whereby the individual can make the best decision by selecting from a set of alternative actions. This procedure allows additional info to be obtained to revise the decision makers assessment of probabilities of what may happen (f/s may provide additional info that is useful for many decisions) Payoff: amount to be received from a decision.
