The Valuation of Decision Analysis

SUMMARY The most obvious motivation for using decision analysis (applied decision theory), to offset its cost, is to improve the quality of the subject's decision. This paper explores approaches for quantifying this prospective value for a proposed analytic effort, bearing in mind that, like unaided decision making, it will fall short of perfect rationality. One valuation approach compares the subject's expected utility with and without the proposed analysis. Its formal properties are examined and a graphical implementation procedure is suggested. A second approach assesses the reduction in the expected cost of irrationality, a concept analogous to opportunity loss.