Decision Theory

March 2026

• Mar 3, 2026ConceptsRisk vs Uncertainty: What People ConfuseFrank Knight's 1921 line between known probabilities and genuine uncertainty, mapped across a five-step spectrum from casino games to questions no distribution covers. The page explains why optimization gives way to robustness, optionality and heuristics once probabilities stop being meaningful, and uses LTCM's roughly $4.6 billion loss in 1998, the Challenger launch decision and COVID-19 preparedness to show what happens when uncertainty gets dressed up as calculable risk.24 MIN65.4k

June 2025

• Jun 19, 2025ExplainersOrigins of Decision Theory: Key DevelopmentsMost people prefer a certain million to a gamble with a higher expected value, then reverse that preference when both options become unlikely, which breaches the independence axiom underpinning expected utility. Savage produced the pattern himself. This page traces the field from Pascal and Fermat through Bernoulli's utility solution to the St. Petersburg paradox, von Neumann and Morgenstern's axioms, and the Ellsberg and prospect theory challenges.38 MIN67.5k
• Jun 3, 2025ExplainersUsing Decision Theory in Everyday ChoicesDecision theorists split choices into four worlds by how much you know: certainty, risk, uncertainty and ignorance. Most practical tools, expected value and expected utility, were built for risk, where probabilities are known. Outside gambling that case is rare; real decisions make you estimate them instead. Even a certain choice between two apartments is hard, because weighing a commute against pet permission compares incommensurable things.51 MIN47.3k

December 2023

• Dec 7, 2023ConceptsWhat Is Game Theory? Strategy, Equilibrium, and Why PeopleRational individual choices routinely produce collectively worse outcomes. In the Prisoner's Dilemma, defection dominates whatever the other player does, so both serve three years instead of one. Repetition changes that. In Robert Axelrod's tournaments, the winner was Tit-for-Tat: cooperate first, copy the opponent's last move, four lines of code, and it won the second tournament too. This guide covers equilibria, signaling, auctions and deterrence.18 MIN12.4k
• Dec 3, 2023ConceptsWhat Is Behavioral Economics? How Psychology Overturned the Rational ActorJohnson and Goldstein's 2003 Science paper on organ donation across 11 European countries is the sharpest demonstration: effective donation rates averaged around 15 percent where people had to opt in and around 97 percent where they had to opt out, with demographics, medical infrastructure and stated attitudes otherwise comparable. Covers prospect theory, loss aversion, anchoring, nudge policy and Gigerenzer's objection.18 MIN13.9k

November 2022

• Nov 26, 2022ConceptsWhat Is Behavioral Economics? Psychology and Decision-MakingKahneman and Tversky described an identical procedure two ways. Framed as a 90 percent survival rate, 84 percent of physicians recommended the surgery; framed as a 10 percent mortality rate, only 50 percent did. Prospect theory explains why: people judge outcomes as gains or losses against a reference point, and losses weigh roughly twice as much. Gigerenzer's critique, that some of these are adaptive rather than errors, remains a live argument.18 MIN5.0k