Foundations of Decision Analysis

Decision analysis is an operations research/management science (OR/MS) discipline that is designed to help decisions makers faced with difficult decisions, multiple stakeholders with many objectives, complex alternatives, significant uncertainties, and important consequences. This chapter examines the technical foundations of decision analysis. It presents the historical foundations of decision analysis. The chapter defines the tenets of decision theory, embodied in five simple rules of behavior that together provide a complete framework for determining how decisions should be made in the face of uncertainty that are consistent with our preferences. It describes the scope of decision analysis using four dimensions: interacting with decision makers, alternatives, preferences, and uncertainty. The chapter discusses the variations in the practice of decision analysis that have developed during the last half-century, pointing out both differences and similarities in those variations. It reviews an important philosophical perspective on decision analysis called value-focused thinking (VFT), created by Ralph Keeney. Controlled Vocabulary Terms decision analysis; Decision making; Decision making under uncertainty; Stakeholders