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Chapter 3
Probability and Decision Theory
When you stop, I mean really stop, and think about
how often you think in terms of probabilities, I am
confident you‟ll find you use it more often than not.
Do you ever decide to get to work by taking one
route as opposed to another Would you find
yourself making health decisions based on your
doctor‟s advice instead of the advice you might
receive from a ten-year-old child Have you ever
purchased a birthday gift for someone after deep
contemplation of what that person might like Do
you trust one news network over another What are
your decisions based on in these situations
Whether or not you‟re willing to give in to your
inner nerd, you should admit that you think in terms of chances and likelihood. I imagine that
you do have a preferred route. I think that you do trust an expert‟s medical opinion. I believe that
you do make a gift purchase after considering what you think the recipient enjoys. I should think
there are some networks that you trust more than others.
In this chapter, we‟ll explore the nature of probabilistic thinking. You‟ll also notice the phrase
“Decision Theory” in the title. Instead of focusing on the trite probability questions involving
situations that we don‟t ever encounter, we‟ll concern ourselves with real-world situations where
probabilistic reasoning will help us make a decision.
Statistics for Decision-Making in Business © Milos Podmanik Page 81