Decision Theory and Risk

Aim

On completion of the course, the students should on an advanced level be able to:

• describe and analyse concepts, theories, and issues within the field of decision theory
• apply concepts and perspectives used in decision theory as practiced in various disciplines
• discuss the differences between a normative and a descriptive perspective in decision theory
• critically discuss how decision-theoretical tools can be used outside academic contexts
• discuss how different perspectives on risk management can be weighed and compared
• critically explain different positions and arguments within decision theory and risks

Content

The course begins with a general overview of classical decision theory, then moves on to more specific questions and various developments or alternatives to this classical theory.

The course addresses decision theory both in terms of the empirical study of how people actually make decisions and how decisions should be made. Factors considered in decision-making and how these factors should be weighed together are discussed. The classical starting point that decisions are about maximizing expected value, where the expected value is a product of an outcome's probability and its value, as well as how alternative perspectives have developed over the past decades, is covered in the course.

The course also addresses questions about risk and how risks should be managed in modern societies. Risk assessment is often a subject for experts, but risk management involves a combination of both normative and descriptive elements, which means that tools from decision theory are applicable.

Topics and issues covered in the course include:

• expected utility theory
• decisions under risk and decisions under uncertainty
• behavioral decision theory, including theories of heuristics and biases
• prospect theory
• alternatives to classical decision theory
• risks and how they should be managed
• the precautionary principle
• group decisions
• voting mechanisms
• Arrow's impossibility theorem