Decision Under Risk
In contrast to Decision Under Uncertainty models, here we assume that we can assign probabilities to consequences
Decision Trees and simple lotteries are the main tool for expressing decision taking process and associated risk
These lotteries are compared by the decision maker and he chooses the best option:
- Expected Values for Lotteries - limited approach
- susceptible to paradoxes such as Saint Petersburg Paradox
- Expected Utility Approach - more preferred