Probability theory

Organizational decisions are made in one of two essentially different contexts: under conditions approaching certainty and, more generally, under conditions of uncertainty. The quantitative analysis which supports decision-making under certainty usually takes the form of maximizing some objective subject to some constraints. Under conditions of uncertainty and inadequate information, probability techniques assign values to probabilities of events and actions and permit the selection of preferred courses of action on the basis of the highest expected projected values. Probability theory supplies a method to quantify judgemental processes which are often carried out by decision-makers on the basis of crude approximations. Use of such techniques makes it possible for decision-makers to be more certain about the expected values of actions, to consider a greater range of alternatives, and to find their way through complex alternatives reasonably easily.