Optimized Certainty Equivalents for Decisions Under Uncertainty
Optimized Certainty Equivalents for Decisions Under Uncertainty

Author: Adi Ben-Israel

Publisher:

Published: 1986

Total Pages: 35

ISBN-13:

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A new approach is proposed for some models of decision-making under uncertainty, using optimized certainty-equivalents induced by expected-utility. Applications to production, investment and inventory models demonstrate the advantages of the new approach. Expected utility theory is 'the major paradigm in decision making ... It has been used prescriptively in management science (especially decision analysis), predictively in finance and economics, descriptively by psychologists ... The expected utility (EU) model has consequently been the focus of much theoretical and empirical research ... In spite of its power, elegance and success, considerable criticism has been directed at the EU theory, specially when used descriptively to model the decision processes underlying risky choice. In this context, evidence refuting the validity of the EU model axioms is relevant.

Optimal Decisions Under Uncertainty
Optimal Decisions Under Uncertainty

Author: J.K. Sengupta

Publisher: Springer Science & Business Media

Published: 2012-12-06

Total Pages: 295

ISBN-13: 3642701639

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Understanding the stochastic enviornment is as much important to the manager as to the economist. From production and marketing to financial management, a manager has to assess various costs imposed by uncertainty. The economist analyzes the role of incomplete and too often imperfect information structures on the optimal decisions made by a firm. The need for understanding the role of uncertainty in quantitative decision models, both in economics and management science provide the basic motivation of this monograph. The stochastic environment is analyzed here in terms of the following specific models of optimization: linear and quadratic models, linear programming, control theory and dynamic programming. Uncertainty is introduced here through the para meters, the constraints, and the objective function and its impact evaluated. Specifically recent developments in applied research are emphasized, so that they can help the decision-maker arrive at a solution which has some desirable charac teristics like robustness, stability and cautiousness. Mathematical treatment is kept at a fairly elementary level and applied as pects are emphasized much more than theory. Moreover, an attempt is made to in corporate the economic theory of uncertainty into the stochastic theory of opera tions research. Methods of optimal decision rules illustrated he re are applicable in three broad areas: (a) applied economic models in resource allocation and economic planning, (b) operations research models involving portfolio analysis and stochastic linear programming and (c) systems science models in stochastic control and adaptive behavior.

Economic and Financial Decisions under Risk
Economic and Financial Decisions under Risk

Author: Louis Eeckhoudt

Publisher: Princeton University Press

Published: 2011-10-30

Total Pages: 245

ISBN-13: 1400829216

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An understanding of risk and how to deal with it is an essential part of modern economics. Whether liability litigation for pharmaceutical firms or an individual's having insufficient wealth to retire, risk is something that can be recognized, quantified, analyzed, treated--and incorporated into our decision-making processes. This book represents a concise summary of basic multiperiod decision-making under risk. Its detailed coverage of a broad range of topics is ideally suited for use in advanced undergraduate and introductory graduate courses either as a self-contained text, or the introductory chapters combined with a selection of later chapters can represent core reading in courses on macroeconomics, insurance, portfolio choice, or asset pricing. The authors start with the fundamentals of risk measurement and risk aversion. They then apply these concepts to insurance decisions and portfolio choice in a one-period model. After examining these decisions in their one-period setting, they devote most of the book to a multiperiod context, which adds the long-term perspective most risk management analyses require. Each chapter concludes with a discussion of the relevant literature and a set of problems. The book presents a thoroughly accessible introduction to risk, bridging the gap between the traditionally separate economics and finance literatures.

Optimisation of Production Under Uncertainty
Optimisation of Production Under Uncertainty

Author: Svend Rasmussen

Publisher: Springer Science & Business Media

Published: 2011-07-23

Total Pages: 83

ISBN-13: 3642216862

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The book provides a short review of the classical approach to planning and decision making under uncertainty. It further explains the concept of state-contingent goods, and it extends earlier work on the state-contingent approach to describing production under uncertainty to the problems involved in optimising production under uncertainty.

First-order Certainty Equivalence
First-order Certainty Equivalence

Author: Edmond Malinvaud

Publisher:

Published: 1967

Total Pages: 26

ISBN-13:

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Given any problem of decision under risk to which the expected utility hypothesis applies, one may associate to it first a riskless problem in which random disturbances are replaced by their expected values, and second a class of intermediate risky problems with decreasing degrees of uncertainty. In this class the optimal decision depends in principle on the degree of uncertainty but turns out to be independent of it, to the first order of approximation, in the neighborhood of the riskless problem. The first-order certainty equivalence explains why it is so difficult to characterize the situations in which an increase in the degree of uncertainty requires a decrease in the allocation of resources to the risky projects. (Author).

Handbook of the Economics of Risk and Uncertainty
Handbook of the Economics of Risk and Uncertainty

Author: Mark Machina

Publisher: Newnes

Published: 2013-11-14

Total Pages: 897

ISBN-13: 0444536868

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The need to understand the theories and applications of economic and finance risk has been clear to everyone since the financial crisis, and this collection of original essays proffers broad, high-level explanations of risk and uncertainty. The economics of risk and uncertainty is unlike most branches of economics in spanning from the individual decision-maker to the market (and indeed, social decisions), and ranging from purely theoretical analysis through individual experimentation, empirical analysis, and applied and policy decisions. It also has close and sometimes conflicting relationships with theoretical and applied statistics, and psychology. The aim of this volume is to provide an overview of diverse aspects of this field, ranging from classical and foundational work through current developments. Presents coherent summaries of risk and uncertainty that inform major areas in economics and finance Divides coverage between theoretical, empirical, and experimental findings Makes the economics of risk and uncertainty accessible to scholars in fields outside economics

Mathematical Methods in Risk Theory
Mathematical Methods in Risk Theory

Author: Hans Bühlmann

Publisher: Springer Science & Business Media

Published: 2007-06-15

Total Pages: 218

ISBN-13: 3540307117

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From the reviews: "The huge literature in risk theory has been carefully selected and supplemented by personal contributions of the author, many of which appear here for the first time. The result is a systematic and very readable book, which takes into account the most recent developments of the field. It will be of great interest to the actuary as well as to the statistician . . ." -- Math. Reviews Vol. 43