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Economic decision making then becomes a problem of maximizing this utility function, subject to constraints (e.g. a budget). This has many advantages. This has many advantages. It provides a compact theory that makes empirical predictions with a relatively sparse model - just a description of the agent's objectives and constraints.
The mythological Judgement of Paris required selecting from three incomparable alternatives (the goddesses shown).. Decision theory or the theory of rational choice is a branch of probability, economics, and analytic philosophy that uses the tools of expected utility and probability to model how individuals would behave rationally under uncertainty.
In decision theory, a decision rule is a function which maps an observation to an appropriate action. Decision rules play an important role in the theory of statistics and economics , and are closely related to the concept of a strategy in game theory .
Cognitive processes and other psychological aspects of decision making matter only to the extent that they have directly measurable implications on choice. The theory of subjective expected utility combines two concepts: first, a personal utility function, and second, a personal probability distribution (usually based on Bayesian probability ...
Social choice theory is a branch of welfare economics that extends the theory of rational choice to collective decision-making. [1] Social choice studies the behavior of different mathematical procedures (social welfare functions) used to combine individual preferences into a coherent whole.
Constitutional economics is a research program in economics and constitutionalism that has been described as extending beyond the definition of "the economic analysis of constitutional law" to explain the choice "of alternative sets of legal-institutional-constitutional rules that constrain the choices and activities of economic and political ...
It therefore generalizes Condorcet's voting paradox, and shows similar problems exist for every collective decision-making procedure based on relative comparisons. [1] Plurality-rule methods like first-past-the-post and ranked-choice (instant-runoff) voting are highly sensitive to spoilers, [6] [7] particularly in situations where they are not ...
An optimal decision is a decision that leads to at least as good a known or expected outcome as all other available decision options. It is an important concept in decision theory . In order to compare the different decision outcomes, one commonly assigns a utility value to each of them.