Breakthroughs in Decision Science and Risk Analysis

Chapter 1Introduction: Five Breakthroughs in Decision and Risk Analysis

Louis Anthony (Tony) Cox, Jr.

Cox Associates, NextHealth Technologies,University of Colorado-Denver, Denver, CO, USA

This book is about breakthroughs in decision and risk analysis—new ideas, methods, and computational techniques that enable people and groups to choose more successfully when the consequences of different choices matter, yet are uncertain. The twentieth century produced several such breakthroughs. Development of subjective expected utility (SEU) theory combined with Bayesian statistical inference as a model of ideal, rational decision-making was among the most prominent of these. Chapter 2 introduces SEU theory as a point of departure for the rest of the book. It also discusses more recent developments—including prospect theory and behavioral decision theory—that seek to bridge the gap between the demanding requirements of SEU theory and the capabilities of real people to improve their decision-making. Chapters 5 and 8 address practical techniques for improving risky decisions when there are multiple objectives and when SEU cannot easily be applied, either because of uncertainty about relevant values, causal models, probabilities, and consequences; or because of the large number and complexity of available choices.

Historical Development of Decision Analysis and Risk Analysis

Perhaps the most audacious breakthrough in twentieth-century decision analysis was the very idea that a single normative theory ...