The various steps involved in the decision theory approach are, i) Acts (or) courses of action (or) strategy (or) decision alternatives ii) States of nature (or) events iii) Pay of table iv) Decision"
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There are 4 basic elements in decision theory: acts, events, outcomes, and payoffs. Acts are the actions being considered by the agent -in the example elow, taking the raincoat or not; events are occurrences taking place outside the control of the agent (rain or lack thereof); outcomes are the result of the occurrence (or lack of it) of acts and events (staying dry or not; being burdened by the raincoat or not); payoffs are the values the decision maker is placing on the occurrences (for example, how much being free of the nuisance of carrying an raincoat is worth to one). Payoffs can be positive (staying dry) or negative (the raincoat nuisance). It is often useful to represent a decision problem by a tree.
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