Problem Formulation And Alternative Generation In The Decision Making Process

Abstract

The standard theory of decision making, widely employed in economics and statistics, is concerned with the rational choice of an action when the set of alternatives for choice and the evaluation function (utility function) are assumed to be given. In the certainty condition, the consequences, in terms of the evaluation function, of choosing any alternative are assumed to be known. In the uncertainty condition, the probability distribution of the outcomes of choosing any alternative is assumed to be known, In the standard theory, rationality is assumed to consist, under the circumstances of uncertainty, of choosing the alternative that will produce the highest expected value of the outcome. This procedure is usually called subjective expected utility(SEU) maximization.