Twelve - Into the Weeds of Rational Decision-Making – How It’s Done

Summary

Bayes Rule is the dominant decision-making framework across a number of disciplines, including medical science, economics, psychology, and physics. It is a powerful tool for making decisions under conditions of uncertainty. The point of Bayesian decision-making is to ground our beliefs in actual facts and data. We have a belief, new information comes along, and we update our belief based on that information. That is the way that we ensure we have a head full of true beliefs that are grounded in evidence rather than prejudice.

We are always developing and updating beliefs from a place of uncertainty, which means that most of our beliefs are probabilistic. For example, the weather report says that the chance it will rain today is low, so that is what we believe. But then we check the sky, see rainclouds, and update our belief based on that observation. Now we believe there is a high probability that it will rain today. We updated our belief based on objective evidence. We behaved rationally.