1 - Decision Problems

Summary

MAXIMISATION OF EXPECTED BENEFIT

Decision theory begins with decision problems. Decision problems arise for agents: entities with the resources to represent, evaluate and change the world around them in various different ways, typically within the context of ongoing personal and institutional projects, activities or responsibilities. These projects together with the environment, both natural and social, provide the givens for the decision problems agents face: their material resources for acting, their information and often their standards for evaluating outcomes, as well as the source of the problems they must respond to. Social scientists hold very different views about the relative importance of the different aspects of this background and the decisions that are made within it, but few would doubt that choices made by consumers, doctors, policy makers and so on have the power to shape the course of events.

To face a genuine decision problem, agents must have options: actions that they are capable of performing and, equally, of forgoing if they so choose. To get an idea of what sorts of things count as a decision problem, let's look at a few examples.

1. Take a bus? You have an appointment that you don't want to miss. If you walk you will arrive late. If you take the bus and the traffic is light, you should arrive ahead of time. On the other hand, if the traffic is heavy then you will arrive very late, perhaps so late that the appointment will be lost. Should you risk your appointment by taking the bus?

2. Buy health insurance? You are currently in good health but know that if you were to fall ill you might not be able to continue to earn an income and, in the worst case, you might not be able to afford the health care you require. By buying health insurance you can ensure that you have all the care you need. But it is ‘expensive’ and if your health remains good, the money is wasted. Is it worth insuring yourself?