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The decision theory (decision analysis) refers to the techniques for analysis decisions under risk and uncertainty. In the process of decision-making the decision –maker wants to achieve something, which may be called his goal, purpose or objective. The decision –maker may choose one particular alternative, which is called strategy of the decision maker,from among various alternatives.

All alternative and outcomes are assumed to be known. There are certain factors, which affect the outcome for different strategies. But these factors or conditions, also called ‘states of nature, are beyond the control of the decision-maker. The strategy (alternative) along with the state of nature determines the degree to which the goal is actually achieved. A measure of achievement of the goal is called the ‘Pay-off’

The pay-off matrix is used as method of presenting data in decision – analysis. Each cell, which is an intersection of a strategy and a state of nature, contains the pay-off

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mabdirahman

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4y ago

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