Decision-making under Conditions of Uncertainty

Abstract

As was explained in chapter 4 it is convenient in an analysis of decision-making to differentiate between conditions of certainty and conditions of uncertainty. In this context certainty does not mean an exact knowledge of every detail relevant to the problem under consideration, but it does mean that we have a reasonably good idea of the value of all relevant factors. By contrast when we speak of uncertainty we mean that there are factors that may or may not arise or whose value may vary over a wide range; the essential feature of conditions of uncertainty is that there is an element of chance associated with these factors. The difference between certainty and uncertainty was illustrated by the water-tower design example described in chapter 4. Two other problems are now examined and serve to illustrate various aspects of decision theory.¹