ABSTRACT
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).
