## Making decisionsMaking Decisions Second Edition D.V. Lindley Formerly Professor of Statistics, University College London This book looks at the problems involved in decision-making and argues that there is only one logical way to make a decision. By the use of three basic principles-assigning probabilities to the uncertain events; assigning utilities to the possible consequences; and choosing that decision that maximizes expected utility-decisions can be reached more efficiently and with less disagreement. It shows that only maximization of expected utility leads to sensible decision-making. This extensively revised second edition uses only elementary mathematics and will be of interest to all those concerned with decision-making and its consequences. Since his retirement from University College London in 1977 Professor Lindley has held visiting appointments at Berkeley, University of Florida, George Washington University, University of Sao Paulo, University of Wisconsin, Monash University, Australia, and University of Canterbury, New Zealand. Contents Decisions and uncertain events A numerical measure for uncertainty The laws of probability A numerical measure for consequences The utility of money Bayes' Theorem Value of information Decision trees The assessment of probabilities and utilities An appreciation Appendix Answers to exercises Glossary of Symbols Subject Index |

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### Contents

Decisions and uncertain events | 1 |

A numerical measure for uncertainty | 13 |

The laws of probability | 30 |

Copyright | |

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100 dollars 50 dollars accident action addition law advice argument assessment assets basic Bayes better black balls branches broker calculations capital chance chapter choice coherence coin consequences consider contemplating corresponding decision node decision problem decision table decision tree decision-maker denote described diminishing marginal utility discussed equal equation exclusive and exhaustive expected monetary value expected value fife Figure gamble give given googol Hence ideas illustrate incoherent increase indifference curves inspection large number latter laws of probability likelihood loss measure method minimax monetary multiplication law obtained occur odds pass is open perfect information possible posterior posterior probabilities prior probabilities prob probabilities and utilities probability premium quadratic rule random node reader reasonable reference relevant result risk-averse scoring rule selected similarly situation statistical stock appreciates Suppose Table A.II theorem tosses true uncertain events uncertainty utility function utility of money zero