Probabilistic decision-making

Making a decision under risk.

• Several outcomes could occur
• Each outcome has a probability of occurring
• Each outcome has a positive or negative value (payout) associated with it.

Risk analysis

• Calculate the value of the outcome for each alternative.
• Calculate the probability of each outcome occurring.
• Calculate the expected value of the outcome for each alternative. (= probability x value)
• Select the alternative with the best expected value.