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Using Bayesian Updating to Improve Decisions under Uncertainty

by Brian T. McCann

Using Bayesian Updating to Improve Decisions under Uncertainty
Decision making requires managers to constantly estimate the probability of uncertain outcomes and update those estimates in light of new information.
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Decision making requires managers to constantly estimate the probability of uncertain outcomes and update those estimates in light of new information. This article provides guidance to managers on how they can improve that process by more explicitly adopting a Bayesian approach. Clear understanding and application of the Bayesian approach leads to more accurate probability estimates, resulting in better informed decisions. More importantly, adopting a Bayesian approach, even informally, promises to improve the quality of managerial thinking, analysis, and decisions in a variety of additional ways.




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California Management Review

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Published at Berkeley Haas for more than sixty years, California Management Review seeks to share knowledge that challenges convention and shows a better way of doing business.

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