Appendix B
Fundamentals of Statistical Decision Theory
The basic elements of a statistical decision problem are (1) a set of hypotheses that characterize the possible true states of nature, (2) a test in which data are obtained from which we wish to infer the truth, (3) a decision rule that operates on the data to decide in an optimal fashion which hypothesis best describes the true state of nature, and (4) a criterion of optimality. These fundamental steps are treated in the material that follows. The optimality criterion we will choose for the decision rule is to minimize the probability of making an erroneous decision, although other criteria are possible [1].
The subject of statistical decision theory and hypothesis testing builds on the ...
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