Bayesian Theory

   

Definition: Bayesian Theory is a theory which is used by scientists to explain and predict decision-making.
Bayes developed rules for weighing the likelihood of different events and their expected outcomes. According to Bayesian theory, managers should make decisions, based on a calculation of the probabilities of all the possible outcomes of a situation.
By weighing the value of each outcome by the probability and summing the totals, they can calculate "expected values" for a decision. If the expected value is positive, then the decision should be accepted; if it is negative, it should be avoided.
Does not include appreciation of downside risk nor unknown risks (see Plausibility Theory).


   
   

More on individual decision making: Anchoring Bias, Black Swan Theory, Bounded Rationality, Cognitive Bias, Cognitive Dissonance, more...



   

MBA Brief offers accurate and concise definitions of MBA concepts, frameworks, methods and models.

We love to keep things really short, but provide links to learn more about your subject and to similar concepts.





© 2021 MBA Brief - Last updated: 28-10-2021  -  Privacy   |   Terms