decision theory

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Definition

Decision theory is an interdisciplinary area of study with how decision makers make decisions, how optimal decisions can be made, and what decision making methods are best suited to various circumstances.

Normative or prescriptive decision theory seeks to prescribe how decisions should be made.

Descriptive or positive is the term to describe how people actually make decisions in the real world.

Both descriptive and prescriptive decision theory are closely related -- descriptive study provides hypotheses for prescriptive consideration, while prescriptions are hypotheses to be tested in the real world.

See organizational action for a historical recap of the development of decision making theory.