Introduction to Decision Theory
The course will provide an introduction to models of human decision making. One of the primary purposes of the course is to provide a set of basic tools that will help the student translate qualitative uncertainty into numbers. A substantial amount of the course will deal with the theory of rational choice in the presence of objective and subjective uncertainty. Rational choice under uncertainty is by far the most used theory of decision making, and its applications are widespread in economics, finance, political science, law, managerial decision making, the economics of health care, and artificial intelligence. The course will use examples heavily from each of these fields (and also fun “paradoxes” such as the Monty Hall Puzzle) in providing an introduction to the basic foundations of decision making. We will also look at the shortcomings of the theory, both from intuitive and empirical perspectives. Two alternative theories – Prospect Theory and decision making using the Dempster-Shafer rule – will be discussed, which will address some of these concerns. No mathematical prerequisites are necessary beyond high school algebra and arithmetic.