Quantitative Methods: An Introduction for Business Management

14

Multiple Decision Makers, Subjective Probability, and Other Wild Beasts

The previous chapters have presented a rather standard view of quantitative modeling. When dealing with probabilities, we have often taken for granted a frequentist perspective; our approach to statistics, especially in terms of parameter estimation, has been an orthodox one. Actually, these are not the only possible viewpoints. In fact, probability and statistics are a branch of mathematics at the boundary with philosophy of science, and as such they are not free from heated controversy. This might sound like a matter of academic debate, but it is not. The “death of probability” was invoked in the wake of the 2008 financial turmoil, when the quantitative modeling approach in finance has been blamed as one of the root causes of the disaster. Of course, truth always lies somewhere between extremes, but this is reason enough to see the need for an eye opening chapter, illustrating alternative views that have been put forward, like subjective probabilities and Bayesian statistics. A similar consideration applies to the chapters on decision models. There, we have also followed a standard route, implicitly assuming that decisions are made by one person keeping all problem dimensions under direct control. We have hinted at some difficulties in trading off multiple and conflicting objectives, when dealing with multiobjective optimization in Section 12.3.3. However, we did not fully address the thorny issues that ...