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Decision Theory

  • Thorsten Hens
  • Marc Oliver Rieger
Chapter
Part of the Springer Texts in Business and Economics book series (STBE)

Abstract

How should we decide? And how do we decide? These are the two central questions of Decision Theory: in the prescriptive (rational) approach we ask how rational decisions should be made, and in the descriptive (behavioral) approach we model the actual decisions made by individuals. Whereas the study of rational decisions is classical, behavioral theories have been introduced only in the late 1970s, and the presentation of some very recent results in this area will be the main topic for us. In later chapters we will see that both approaches can sometimes be used hand in hand, for instance, market anomalies can be explained by a descriptive, behavioral approach, and these anomalies can then be exploited by hedge fund strategies which are based on rational decision criteria.

Keywords

Utility Function Risk Aversion Prospect Theory Stochastic Dominance Expected Utility Theory 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  • Thorsten Hens
    • 1
  • Marc Oliver Rieger
    • 2
  1. 1.University of ZurichZurichSwitzerland
  2. 2.University of TrierTrierGermany

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