Decision Theory

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Decision theory combines probability theory with utility theory and provides a formal and complete framework for decisions (economic or otherwise) that are made under uncertainty – that is, in cases where probabilistic descriptions appropriately capture the decision maker’s environment.

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This is suitable for “large” economies where each agent need pay no attention to the actions of other agents as individuals. For “small” economies, the situation is much more like a game: the actions of one player can significantly affect the utility of another (either positively or negatively).

 

 

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