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 on individual decision making...
You may also like:
Full-time MBA, Executive MBA, Executive Education, Online MBA.
MBA Brief offers concise, yet precise definitions of concepts, methods and models as taught in a study Master of Business Administration.
We like to keep things short, and provide links to learn more about your subject.
© 2024 MBA Brief - Last updated: 5-3-2024 - Privacy | Terms