Decision Theory

The chapter gives a brief introduction to general decision theory and decision rules that can be applied depending on the information about the states of the world, i.e., the scenarios in which events can occur. The information depends on whether the probability of the states is unknown (fundamental uncertainty) or known (risk). The various decision rules are illustrated and critically discussed using an example. Subsequently, the applicability of these rules is examined if the outcome does not depend on chance but on the decision of another decision-maker, i.e., if there is a strategic interaction as analyzed in game theory.