In Chapter 3 of your book, we looked at examples that deal with only a small number of states of nature and decision alternatives. But what if there were 50, 100, or even thousands of states and/or alternatives? If you used a decision tree or decision table, solving the problem would be virtually impossible. This module shows how decision theory can be extended to handle problems of such magnitude.

We begin with the case of a firm facing two decision alternatives under conditions of ­numerous states of nature. The normal probability distribution, which is widely applicable in business decision making, is first used to describe the states of nature.