Decision theory has been developed from the rational economic man concept which originated during the 18th century. Under the influence of the British philosopher and economist John Stuart Mill the Utilitarian principle was introduced. It was, however, Von Neumann and Morgenstern (1947) who laid the scientific basis for decision-making. They introduced mathematical-statistical axioms and probabilistic calculations into the model which would facilitate logical reasoning while maximizing profit and minimizing costs, based on (subjective) expected utility. Utility is the value attached to the outcome of a decision process. By ordering one’s preferences for the outcomes of the various alternative tracks in the process one could, by means of probabilistic calculations, choose the track with the highest gain. A number of conditions have to be fulfilled. Such axioms and conditions together constitute the rules for optimizing decision strategies. Such a model may serve as an explanation for particular processes of human thinking in the setting of a rational task environment.
KeywordsDecision Maker Prior Probability Decision Theory Subjective Probability Utility Theory
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