Decision theory

Abstract

Decision theory investigates the reasoning behind choices, ranging from everyday decisions like transportation to more significant life choices. It posits that an agent’s actions are determined by their beliefs and desires, though this is debated. Normative decision theory focuses on rationality, specifying criteria that an agent’s preferences should satisfy in any situation. The key issue is uncertainty, and the dominant theory, expected utility (EU), states that in uncertain situations, one should choose the option with the highest expected desirability or value. This entry explores the concept of preferences, the development of normative decision theory, the two prominent versions of EU theory, its broader implications, and challenges to its assumptions. It also discusses sequential decisions and their relevance to rational preferences.