Bayesian decision theory: A simple toy problem | Zendy

H. R. N. van Erp | Zendy; R. O. Linger | Zendy; Pieter van Gelder | Zendy

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Bayesian decision theory: A simple toy problem

Author(s) -

H. R. N. van Erp,

R. O. Linger,

Pieter van Gelder

Publication year - 2016

Publication title -

aip conference proceedings

Language(s) - English

Resource type - Conference proceedings

SCImago Journal Rank - 0.177

H-Index - 75

eISSN - 1551-7616

pISSN - 0094-243X

DOI - 10.1063/1.4959058

Subject(s) - outcome (game theory) , decision theory , expected utility hypothesis , bayesian probability , decision problem , simple (philosophy) , optimal decision , investment (military) , utility theory , evidential decision theory , decision rule , von neumann–morgenstern utility theorem , mathematical economics , investment decisions , econometrics , subjective expected utility , bayes estimator , decision analysis , computer science , economics , artificial intelligence , microeconomics , evidential reasoning approach , decision tree , business decision mapping , algorithm , behavioral economics , philosophy , epistemology , politics , political science , law

We give here a comparison of the expected outcome theory, the expected utility theory, and the Bayesian decision theory, by way of a simple numerical toy problem in which we look at the investment willingness to avert a high impact low probability event. It will be found that for this toy problem the modeled investment willingness under the Bayesian decision theory is minimally three times higher compared to the investment willingness under either the expected outcome or the expected utility theories, where it is noted that the estimates of the latter two theories seem to be unrealistically low.

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