The Economics of Decision Making

Abstract

The design of a decision analysis is itself a complex decision problem. In theory, each aspect of analysis, encoding the probability density functions of state variables, encoding the von Neuman-Morgenstern utility function, and computing profit lotteries is an experiment. The results of the experiments, the data, are used to update the probabilities in the primary decision problem. The economic value of the experiment is the well known value of imperfect information. The drawback to the theoretical approach is that the data are functions. Practical methods for encoding prior distributions over functions do not exist. Therefore, the traditional approach is to parameterize the data. The authors' approach is unique because we show that for an interesting class of decision problems, arbitrary parameterization is not necessary.

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Document Details

Document Type
Technical Report
Publication Date
Aug 31, 1974
Accession Number
AD0786755

Entities

People

  • Thomas R. Rice

Organizations

  • Stanford University

Tags

Communities of Interest

  • Human Systems

DTIC Thesaurus Topics

  • Data Science
  • Decision Theory
  • Department Of Veterans Affairs
  • Economics
  • Education
  • Governments
  • Information Science
  • Military Research
  • Probability Density Functions
  • Probability Distributions
  • Psychology
  • Random Variables
  • Sampling
  • Slope
  • Systems Science
  • Theses
  • United States Government

Readers

  • Operations Research
  • Statistical inference.
  • Team-Based Human-Centered Cognitive Task Decision Making and Information Performance.