This chapter introduces the basics of decision theory in both a Bayesian and frequentist

context. The discussion is actually a continuation of the last chapter in that we will add a

“cost” dimension to model comparison and testing. The emphasis here is not on abstract

theory, but rather some practical applications to problems in the social and behavioral sci-

ences. It is important to note that decision theory is a topic that is very deep mathematically

and one that touches many academic fields, including economics, management, statistics,

international relations, pure mathematics, psychology, philosophy, and more. Therefore it

would be hard to do justice to this vast enterprise in a single chapter. Interested readers

may want to explore the cited works here, beginning with the foundational work of: Raiffa

and Schlaifer (1961), Savage (1972), and Lindley (1972).