2.3. Basics of Decision Theory

Decision theory provides a rational framework for choosing between alternative courses of action when the consequences resulting from this choice are imperfectly known (North 1968). Decision theory has been applied more to business management situations than to engineering design decisions. The purpose of this section is to acquaint the reader with the basic concepts of decision theory, including elements of a decision, decision criteria, decision under uncertainty, and attitude toward risk. Later, in Sections 2.4 and 2.5, we discuss two major theories extended from the basics of decision theory—utility theory and game theory. These theories were explored for support of engineering design in recent years. We also ...

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