In decision theory, what assumption is made about individuals?

In decision theory, the assumption that individuals possess perfect information is fundamental to many models of rational decision-making. This concept means that individuals have access to all relevant data and insights necessary to make optimal choices, allowing them to evaluate all possible alternatives and their outcomes accurately. The premise suggests that decision-makers are fully informed about the consequences of their actions, which leads to the formulation of a utility-maximizing decision process.

This assumption simplifies the analysis of decisions, enabling theorists to create models that predict behavior under the ideal condition of complete knowledge. While real-world situations often involve uncertainty and insufficient information, the notion of perfect information provides a baseline from which to analyze deviations and challenges in actual decision-making processes. Consequently, understanding this assumption is crucial for interpreting various economic and behavioral models in decision theory.