Decision Theory

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Definition of 'Decision Theory '

An interdisciplinary approach to determine how decisions are made given unknown variables and an uncertain decision environment framework. Decision theory bring together psychology, statistics, philosophy and mathematics to analyze the decision-making process. Decision theory is applied to a wide variety of areas such as game theory, auctions, evolution and marketing.
Investopedia Says

Investopedia explains 'Decision Theory '

A common example of decision theory stems from the prisoner’s dilemma in which two individuals are faced with an uncertain decision where the final outcome is not only based on their personal decision, but also on that of the other individual. Since both parties do not know what actions the other person will take, this results in an uncertain decision framework.

While mathematics and statistical models determine what the optimal decision should be, psychology and philosophy introduce factors of human behaviors to suggest the most likely outcome.

Search results for

'Decision Theory '

  • Using Decision Trees In Finance

    http://www.investopedia.com/articles/financial-theory/11/decisions-trees-finance.asp
    ... trees are a major component of many finance, philosophy and decision analysis
    university ... setting, and also have been paramount to investment theory and practice ...

  • The Basics Of Game Theory

    http://www.investopedia.com/articles/financial-theory/08/game-theory-basics.asp
    ... commonly used in the study of game theory: Game: Any set of circumstances that has
    a result dependent on the actions of two of more decision makers ("players"); ...

  • Microeconomics: Factors Of Business Decision-Making | Investopedia

    http://www.investopedia.com/university/microeconomics/microeconomics4.asp
    ... Microeconomic theory holds that a price reduction should increase demand. ... levels
    of the company, Firm A, when the executives meet to make a decision on this ...

  • Game Theory: Beyond The Basics

    http://www.investopedia.com/articles/financial-theory/09/game-theory-beyond-basics.asp
    ... their decision at the same time. With simultaneous games, we no longer use the common
    introductory method of backward induction. Proponents of game theory ...

  • Sector Rotation: The Essentials

    http://www.investopedia.com/articles/trading/05/020305.asp
    ... market. It sprouted as a theory from National Bureau of Economic Research
    (NBER) data on economic cycles dating back to 1854. It's ...

  • Microeconomics: Assumptions and Utility | Investopedia

    http://www.investopedia.com/university/microeconomics/microeconomics2.asp
    ... Economists have pointed out a major flaw in the utility theory, however, which ... Other
    elements may influence their decision-making, some of which they may be ...

  • An Introduction To Corporate Valuation Methods

    http://www.investopedia.com/articles/financial-theory/11/corporate-project-valuation-methods.asp
    ... Tutorial: Financial Concepts When a firm is presented with a capital budgeting decision,
    one of its first tasks is to determine whether or not the project will ...

  • CFA Level 1 Study Guide - Corporate Finance - Factors that ...

    http://www.investopedia.com/exam-guide/cfa-level-1/corporate-finance/capital-structure-decision-factors.asp
    ... 11.20 Factors that Influence a Company's Capital-Structure Decision; 11.21 Business ...
    The Tradeoff Theory of Leverage; 11.28 Signaling Prospects Through Financing ...

  • Financial Theory Tutorials | Investopedia

    http://www.investopedia.com/university/all/financial-theory/
    ... Read More »; Behavioral Finance. Learn the science behind irrational decision
    making and how you can avoid it. Read More »; Dow Theory. ...

  • Infamous Insider Traders

    http://www.investopedia.com/articles/financial-theory/09/defining-insider-trading.asp
    ... The principle behind the decision was that all market participants must have equal
    information, and any with an informational edge must disclose or abstain ...

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