Probability in Economic Decision-Making: Foundations, Applications, and Case Evidence
Research Article
Open Access
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Probability in Economic Decision-Making: Foundations, Applications, and Case Evidence

Yanghong Bie 1*
1 Macduffie school
*Corresponding author: byh070918@163.com
Published on 26 November 2025
Volume Cover
AEMPS Vol.244
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-80590-563-9
ISBN (Online): 978-1-80590-564-6
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Abstract

Modern economies confront pervasive uncertainty from stochastic demand, volatile prices, heterogeneous preferences, and incomplete information. Probability theory provides a coherent language and tools to quantify and manage such uncertainty across investment, forecasting, insurance, and consumer analytics. This study synthesizes foundational probability concepts with economic decision problems, develops a unifying framework that integrates expected value, variance, and Bayesian updating with portfolio selection and risk control, and demonstrates the approach through case analyses in tourism demand planning and insurance pricing. Methodologically, the paper combines conceptual modeling, stylized numerical examples, and references to empirical practices in the literature. The results suggest that (i) expected-value-based rules are necessary yet insufficient without explicit variance and tail-risk considerations; (ii) probability-guided forecasting improves allocation and inventory choices; and (iii) transparent probability models enhance consumer-behavior inference, pricing, and resilience under uncertainty. Its contribution is to provide an analytically feasible blueprint with tables and diagrams for the application of probability to economic management problems and to highlight research gaps related to model uncertainty and non-ergodicity.

Keywords:

probability, uncertainty, risk management, market forecasting, consumer behavior

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Bie,Y. (2025). Probability in Economic Decision-Making: Foundations, Applications, and Case Evidence. Advances in Economics, Management and Political Sciences,244,18-22.

References

[1]. Steel MFJ. (2019). Model averaging and its use in economics. arXiv: 1709.08221v3.

[2]. Lawson T. (1988) Probability and uncertainty in economic analysis. Journal of Post Keynesian Economics, 11(1): 38–65.

[3]. Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1): 77–91.

[4]. Savage LJ. (1954) The Foundations of Statistics. New York: Wiley.

[5]. Kahneman D, Tversky A. (1979) Prospect theory: An analysis of decision under risk. Econometrica, 47(2): 263–291.

[6]. Arrow KJ. (1971) Essays in the Theory of Risk-Bearing. Chicago: Markham Publishing.

[7]. Zhao C. (2020) Applications of probability and mathematical statistics in economic life. Modern Business (Economics Research Edition), 2020(1): 62–65.

[8]. Zhao Y, Mei H, Xiong H. (2018) Applications of probability theory and mathematical statistics in the economy. Journal of Hefei University (Comprehensive Edition), 35(2): 123–126.

[9]. Li X. (2018) Applications of probability knowledge in economic problems. Economic Research Guide, (Issue and pages unavailable)

[10]. Gong J. (2019) Applications of probability and applied statistics in the economy. (Journal information unavailable) Vol. 53, No. 10: 65–66.

[11]. Cheng J. (2019). Exploration of applications of probability and applied statistics in the economy. Modern Business, (Issue unavailable)

References

[1]. Steel MFJ. (2019). Model averaging and its use in economics. arXiv: 1709.08221v3.

[2]. Lawson T. (1988) Probability and uncertainty in economic analysis. Journal of Post Keynesian Economics, 11(1): 38–65.

[3]. Markowitz, H. (1952). Portfolio selection. The Journal of Finance, 7(1): 77–91.

[4]. Savage LJ. (1954) The Foundations of Statistics. New York: Wiley.

[5]. Kahneman D, Tversky A. (1979) Prospect theory: An analysis of decision under risk. Econometrica, 47(2): 263–291.

[6]. Arrow KJ. (1971) Essays in the Theory of Risk-Bearing. Chicago: Markham Publishing.

[7]. Zhao C. (2020) Applications of probability and mathematical statistics in economic life. Modern Business (Economics Research Edition), 2020(1): 62–65.

[8]. Zhao Y, Mei H, Xiong H. (2018) Applications of probability theory and mathematical statistics in the economy. Journal of Hefei University (Comprehensive Edition), 35(2): 123–126.

[9]. Li X. (2018) Applications of probability knowledge in economic problems. Economic Research Guide, (Issue and pages unavailable)

[10]. Gong J. (2019) Applications of probability and applied statistics in the economy. (Journal information unavailable) Vol. 53, No. 10: 65–66.

[11]. Cheng J. (2019). Exploration of applications of probability and applied statistics in the economy. Modern Business, (Issue unavailable)

Cite this article

Bie,Y. (2025). Probability in Economic Decision-Making: Foundations, Applications, and Case Evidence. Advances in Economics, Management and Political Sciences,244,18-22.

Data availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

About volume

Volume title: Proceedings of ICFTBA 2025 Symposium: Strategic Human Capital Management in the Era of AI

ISBN: 978-1-80590-563-9(Print) / 978-1-80590-564-6(Online)
Editor: Lukáš Vartiak, Anil Nguyen
Conference website: https://www.icftba.org/London.html
Conference date: 4 November 2025
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.244
ISSN: 2754-1169(Print) / 2754-1177(Online)

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