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IMS 555
INTRODUCTION TO
DECISION THEORY
CHAPTER OVERVIEW
Introduction to Decision Theory
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LEARNING OBJECTIVES:
After studying this chapter, you should be able to:
1. Understand the concept of Decision Theory (DT)
2. Understand issues about the nature of decisions
3. Describe the concept of normative approach of DT
4. Describe the concept of descriptive approach of DT
1.1
INTRODUCTION
This chapter presents preliminary discussions about decision that include short
overview, relationship between decision and theoretical question with examples and
theories or approach of decision as critical parts in discussing the decision subject.
The goal of this presentation is the nurture of firm understanding on the essential
tenets about decision.
2.1
3.1
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i.
alternatives to choose from and one chooses in a systematic way, not in random.
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The selection is often based on goal directed activities, and hence decision theory
is concerned with goal-directed behavior in the presence of options.
Decision theory has two goals i.e to describe how agents do make decisions
(descriptive decision theory) and to prescribe how agents should make decisions
(prescriptive decision theory). A third branch of decision theory, normative decision
theory, tries to describe how a hypothetical, infinitely intelligent being would make
decisions.
4.1
NORMATIVE THEORY
A normative decision theory is a theory about how decisions would be made. In this
theory, the norms or standard practice that a decision maker follows and acts in
reaching a resolution is critical. It addresses the activities in making decision which
involve some standard processes. Normative decision theory seeks to provide an
axiomatic, consistent basis for decision making.
Most of decision theory and/or analysis said to be normative or prescriptive rather
than
procedural dimension. Thus the tasks of identifying the best decision to take,
assuming an ideal decision taker who is fully informed, ability to compute with perfect
accuracy and fully rational would be vital in this theory.
5.1
DESCRIPTIVE THEORY
Descriptive decision theory attempts to explain what people actually do and what
people are observed to do when making decision. In another word it explains the
processes that must be going through by a decision maker. In this sense, descriptive
theory attempts to know how decisions are made and explains what exactly occurs in
human cognitive when they make decision. In a descriptive study, the decision model
is determined by the user's behavior, and the goal is to obtain an accurate model of
the user's actual decision process.
Descriptive approach requires a detailed and thorough understanding of the task that
faces the decision maker. It is as important to understand the decision maker's task,
or "environment," as it is to understand how she mentally processes information. Due
to that descriptive theory is more heading toward cognitive thinking, reasoning and
mental activities, it is capable to nurture a new idea, concept and knowledge which
would assist in improvement of decision making. In this way, descriptive theory
concerned with describing human judgment and decision making in a scientific way.
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Descriptive models are evaluated according to their ability to reproduce the behavior
of the decision maker.
As descriptive theory deals with what people actually do and what people are
observe to do, it simply an observation and description of what happens when
people make decision. For example, we might observe people who are speaking
some language, and simply record what they say and try to determine the rules, if
any, that determine what they say; perhaps they sometimes use double-negatives,
like I dont want no eggs. In such a case, we would simply observe what they do,
and try to account for why it is they are doing that. This would be a descriptive
grammar. In the context of ethics, we might undertake a descriptive ethical enquiry,
trying to determine the principles that some person or group of people use when
making their morally relevant decisions: perhaps they do whatever they feel like, or
perhaps they do what they think will lead to the greatest overall happiness of people.
Whatever the details, the descriptive task would simply seek to determine what
ethical principles, if any, are in fact being used by some person or group in their
morally relevant behavior.
6.1
CONCLUSION
This chapter introduces students to the tenets of DT that includes conceptual
definition of DT, the decision and theoretical question about decision and the three
major theories of decision i.e normative, descriptive and prescriptive. DT is a body of
knowledge and related analytical techniques designed to help a decision maker
choose among a set of alternatives in light of their possible consequences. DT is
applicable to conditions of certainty, risk, or uncertainty. In general, DT deals with
human decision making in the extent of insufficient information and incomplete
control over events. DT involves two entities i.e decision maker and an arbitrary
nature. The decision maker performs analyses and cognitively chooses some
courses of action in an optimal fashion. In this way DT lead to discussion of at least
normative and descriptive theories or approaches that may facilitate decision maker
in making decision. Normative theory is explanation about how decisions would be
made. Descriptive theory is an explanation what people actually do and what people
are observed to do when making decision. Prescriptive theory is articulation of the
correct principles that people ought to apply when making decision.
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POINT TO PONDER
Main goal of decision theory is deciding which action to take
Normative Theory tries to describe how a hypothetical, infinitely intelligent being
would make decisions
reasonably accurate account of how individuals actually make decisions under
uncertainty
Both normative and descriptive theories have significant role in decision making
ACTIVITIES
Student should further explore;
The concept of decision theory
The realist, optimist, pessimist and opportunist views of decision
More conceptual definition of decision from the vast literature of DM
The concept of structured problem
The concept of unstructured/Ill-Structured Problem
The Concept of Normative Theory
The normative aspect of decision theory
The Concept of Descriptive Theory
The descriptive aspect of decision theory
STUDY QUESTIONS
PART A: DEFINITION
Please define the following terms:
1.
2.
3.
4.
5.
Decision Theory
Decision
Theoretical Question
Normative Theory
Descriptive Theory
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