Decision Theory

by

Paul Weirich

• LAST REVIEWED: 07 September 2022
• LAST MODIFIED: 24 April 2023
• DOI: 10.1093/obo/9780195396577-0207

Introduction

Decision theory is multidisciplinary and treats all aspects of choice. It is the foundation of the behavioral and social sciences. Philosophical decision theory examines and refines decision theory’s philosophical claims. Its primary subject is rational choice. Thus, it treats normative matters and is allied with branches of philosophy such as epistemology and ethics. Decision theory assists epistemology in its study of rational belief and assists ethics in its study of good acts, goals, and character traits. The behavioral and social sciences use decision theory to construct models of human behavior. Often a theory of rationality yields a good first approximation of human behavior. A general theory of rationality covers individuals and groups of people and shows how the rationality of individuals leads to the collective rationality of groups. It offers a fruitful foundation for the behavioral and social sciences. Decision theory’s main normative question concerns the nature of rationality. What principles of rationality govern choice? Principles of instrumental rationality counsel adoption of means appropriate to one’s ends. A large body of literature explicates this advice. It elaborates the view that instrumental rationality requires maximization of subjective utility: that is, acting to maximize achievement of one’s goals. An instrumentally rational act is rational conditional on the rationality of the ends the act serves and the agent’s processing of evidence about appropriate means. Other principles of rationality govern adoption of ends. Philosophical decision theory has its roots in studies of practical reasoning going back to Aristotle. It blossomed in the twentieth century because of the work of Frank Ramsey, Bruno de Finetti, Leonard Savage, Richard Jeffrey, and many others. It thrives because of its intrinsic intellectual interest and because it supports traditional areas of philosophy such as epistemology and ethics. Philosophical decision theory unifies normative studies of belief, desire, and action. Its method distinguishes it from other investigations of choice. Although it draws on the behavioral and social sciences, its task is to advance foundational studies of choice rather than empirical investigations of it. Philosophy has the freedom to adopt perspectives on choice that experiments and surveys do not attempt. The normative assessment of choice is its principal exercise of this liberty. It also investigates the introspective side of choice and interpersonal comparisons of mental states, which experimentalists find insufficiently accessible to serve as the basis of public science.

General Overviews

Luce and Raiffa 1957 and Jeffrey 1990 are classic works defining the field. Fishburn 1970 and Kreps 1988 thoroughly review important components of decision theory. Binmore 2009 and Gilboa 2010 are recent surveys of decision theory’s main ideas.

• Binmore, Ken. Rational Decisions. Princeton, NJ: Princeton University Press, 2009.

  Leonard Savage’s account of inference of probabilities and utilities from preferences is a classic of decision theory. Binmore explains Savage’s theory and its attempt to reduce an option’s consequences to manageable size: that is, to reduce grand worlds to small worlds. He suggests a way of improving the theory. See also Historical Background.

• Fishburn, Peter. Utility Theory for Decision Making. New York: Wiley, 1970.

  DOI: 10.21236/AD0708563

  The major parts treat utilities without probabilities and also utilities with probabilities. A chapter explains Savage’s expected-utility theory.

• Gilboa, Itzhak. Rational Choice. Cambridge, MA: MIT Press, 2010.

  An introductory survey of decision theory suitable for undergraduates. Gilboa uses dialogues to present key points. He treats individual and group decisions and offers an account of rationality.

• Jeffrey, Richard. The Logic of Decision. 2d ed. Chicago: University of Chicago Press, 1990.

  A seminal work on utility, which Jeffrey calls “desirability.” Unlike Savage, Jeffrey takes probabilities and utilities to attach to propositions. His version of the expected utility principle uses conditional probabilities. Because it uses standard conditional probabilities to obtain an act’s expected utility, it exemplifies evidential decision theory. First edition, 1965. See also Causal Decision Theory.

• Kreps, David. Notes on the Theory of Choice. Boulder, CO: Westview, 1988.

  Covers topics such as preference relations and revealed preference, choice under uncertainty, utility functions, subjective probability, conditional preference and conditional probability, Allais’s paradox, and Ellsberg’s paradox. Clearly presents these key components of decision theory.

• Luce, R. Duncan, and Howard Raiffa. Games and Decisions. New York: Wiley, 1957.

  Besides introducing decision theory, this overview also introduces game theory. Game theory treats an agent’s decisions among strategies in a game played with other agents deciding among their strategies.