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  • 1
    Electronic Resource
    Electronic Resource
    Springer
    Journal of risk and uncertainty 2 (1989), S. 5-35 
    ISSN: 1573-0476
    Keywords: Ambiguity ; expected utility ; insurance ; risk ; subjective probability
    Source: Springer Online Journal Archives 1860-2000
    Topics: Economics
    Notes: Abstract In a series of experiments, economically sophisticated subjects, including professional actuaries, priced insurance both as consumers and as firms under conditions of ambiguity. Findings support implications of the Einhorn-Hogarth ambiguity model: (1) For low probability-of-loss events, prices of both consumers and firms indicated aversion to ambiguity; (2) As probabilities of losses increased, aversion to ambiguity decreased, with consumers exhibiting ambiguity preference for high probability-of-loss events; and (3) Firms showed greater aversion to ambiguity than consumers. The results are shown to be incompatible with traditional economic analysis of insurance markets and are discussed with respect to the effects of ambiguity on the supply and demand for insurance.
    Type of Medium: Electronic Resource
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  • 2
    Electronic Resource
    Electronic Resource
    Springer
    Journal of risk and uncertainty 2 (1989), S. 189-212 
    ISSN: 1573-0476
    Keywords: Risk ; choice ; perception ; control ; adjustment ; uncertainty
    Source: Springer Online Journal Archives 1860-2000
    Topics: Economics
    Notes: Abstract Experienced executives frequently try to modify the risky situations they face in order to make them more favorable rather than simply choosing from among available decision options. This article investigates several types of risk adjustments such as trying to influence the situation through bargaining and spending resources, gathering information, developing new options, and consulting one's superiors. A theoretical framework is presented that characterizes different types of adjustments and relates them to variables such as perceived risk, perceived control, perceived responsibility, decisiveness, and risky choice. The framework is tested using experienced decision makers who respond to four simulated risky business decisions.
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  • 3
    Electronic Resource
    Electronic Resource
    Springer
    Journal of risk and uncertainty 2 (1989), S. 235-263 
    ISSN: 1573-0476
    Keywords: risk ; expected utility ; irrationality ; prospect theory
    Source: Springer Online Journal Archives 1860-2000
    Topics: Economics
    Notes: Abstract This article develops a variant of the expected utility model termed prospective reference theory. Although the standard model occurs as a limiting case, the general approach is that individuals treat stated experimental probabilities as imperfect information. This model is applied to a wide variety of aberrant phenomena, including the Allais paradox, the overweighting of low-probability events, the existence of premiums for certain elimination of risks, and the representativeness heuristic. The prospective reference theory model predicts most of the observed behavioral patterns rather than being potentially reconcilable with such phenomena.
    Type of Medium: Electronic Resource
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  • 4
    Electronic Resource
    Electronic Resource
    Springer
    Theory and decision 27 (1989), S. 93-106 
    ISSN: 1573-7187
    Keywords: cognition ; decision ; graphs ; artificial intelligence ; risk ; uncertainty ; expert systems ; expected utility
    Source: Springer Online Journal Archives 1860-2000
    Topics: Sociology , Economics
    Notes: Abstract In the first part, we try to give a representation of the process by which man endeavours to grasp uncertainty. We propose a backward exploration which we will modelize through an influence diagram and then we can draw a few conclusions from that representation for the axiomatics of Decision. In the second part, we deal with the processing of the information formatted in such a way, regarding both its temporal complexity and its elective complexity. The first part as the second one dealing with representation and the consequences for information processing of uncertainty cognition lead to a severe criticism of the expected utility hypothesis. To conclude, we suggest a few remarks on expert systems of decision aid under uncertainty.
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  • 5
    Electronic Resource
    Electronic Resource
    Springer
    Theory and decision 26 (1989), S. 1-35 
    ISSN: 1573-7187
    Keywords: research and development ; resource allocation ; project selection ; uncertainty ; data improvement ; control strategy
    Source: Springer Online Journal Archives 1860-2000
    Topics: Sociology , Economics
    Notes: Abstract This paper deals with the problem of optimal control of R&D. The fundamental aspects of this problem are viewed as: uncertainty about economic parameters of new technology (or new activity, e.g. a search for new oil fields) explored by a group of parallel projects attempting to make advances in this technology as well as improve economic data; allocation of investments among rival projects under a given total budget; timing of the ultimate selection of new technology (activity) according to the most successful project. The process of data improvement (PDI) is described as a (random) process of reducing the intervals of uncertainty, the rate of data improvement being controlled, in effect, by the investment policy. A stationary dynamic model with infinite horizon of planning and with the criterion of total discounted costs is developed. The model is carefully investigated from the economic point of view, and some new effects are discovered. It is demonstrated that uncertainty may be the source of additional gain; the bigger the initial uncertainty, the bigger the gain may be under optimal control. This effect is based on PDI, the economic background of which is presented as multiplication of the expected gain over time, which is typical for the classical macromodels of economics. Optimal continuous control is constructed at every time moment, and answers to two main questions are given: (1) either to prolong R & D or to make ultimate selection of one project, (2) how to allocate resources among the rival projects in the case of R&D prolongation. The last question is answered on the basis of profitability indices that relate efficiencies of PDI for particular projects to the costs of information.
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  • 6
    Electronic Resource
    Electronic Resource
    Springer
    Theory and decision 26 (1989), S. 99-105 
    ISSN: 1573-7187
    Keywords: decision theory ; uncertainty ; betting system ; Dutch book ; belief function
    Source: Springer Online Journal Archives 1860-2000
    Topics: Sociology , Economics
    Notes: Abstract By considering situations of partially resolving uncertainty, a one-to-one correspondence between belief functions and coherent betting systems à la de Finetti is shown to exist.
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  • 7
    Electronic Resource
    Electronic Resource
    Springer
    Theory and decision 26 (1989), S. 263-293 
    ISSN: 1573-7187
    Keywords: utility ; risk ; value ; game theory ; consequences ; Bayesian
    Source: Springer Online Journal Archives 1860-2000
    Topics: Sociology , Economics
    Notes: Abstract In this paper, a problem for utility theory - that it would have an agent who was compelled to play “Russian Roulette’ with one revolver or another, to pay as much to have a six-shooter with four bullets relieved of one bullet before playing with it, as he would be willing to pay to have a six-shooter with two bullets emptied - is reviewed. A less demanding Bayesian theory is described, that would have an agent maximize expected values of possible total consequence of his actions. And utility theory is located within that theory as valid for agents who satisfy certain formal conditions, that is, for agents who are, in terms of that more general theory, indifferent to certain dimensions of ‘risk’. Raiffa- and Savage-style arguments for its more general validity are then resisted. Addenda are concerned with implications for game theory, and relations between ‘utilities’ and ‘values’.
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  • 8
    Electronic Resource
    Electronic Resource
    Springer
    Journal of risk and uncertainty 1 (1988), S. 267-283 
    ISSN: 1573-0476
    Keywords: Risk ; uncertainty ; expected utility ; nonlinear preference
    Source: Springer Online Journal Archives 1860-2000
    Topics: Economics
    Notes: Abstract During the past generation, expected utility theory has been widely accepted as the normative standard for decision making under risk and under uncertainty. However, it is now known that reasonable people often violate its assumptions, and a number of generalizations of the theory have been developed to accommodate some of the more common violations. This essay recalls the origins of expected utility in the early 1700s, notes its axiomatizations on the basis of preference comparisons in the mid-1900s, describes violations of those axioms uncovered since then, outlines new theories stimulated by the violations, and suggests where the field might be headed in the next few decades.
    Type of Medium: Electronic Resource
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  • 9
    Electronic Resource
    Electronic Resource
    Springer
    Theory and decision 24 (1988), S. 169-200 
    ISSN: 1573-7187
    Keywords: decision theory ; risk ; expected utility ; security level ; risk aversion
    Source: Springer Online Journal Archives 1860-2000
    Topics: Sociology , Economics
    Notes: Abstract The particular attention paid by decision makers to the security level ensured by each decision under risk, which is responsible for the certainty effect, can be taken into account by weakening the independence and continuity axioms of expected utility theory. In the resulting model, preferences depend on: (i) the security level, (ii) the expected utility, offered by each decision. Choices are partially determined by security level comparison and completed by the maximization of a function, which express the existing tradeoffs between expected utility and security level, and is, at a given security level, an affine function of the expected utility. In the model, risk neutrality at a given security level implies risk aversion.
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  • 10
    Electronic Resource
    Electronic Resource
    Springer
    Annals of operations research 9 (1987), S. 615-628 
    ISSN: 1572-9338
    Keywords: Bayesian paradigm ; Bayes ; statistical inference ; applied probability ; uncertainty
    Source: Springer Online Journal Archives 1860-2000
    Topics: Mathematics , Economics
    Notes: Abstract This paper is based on an invited lecture given by the author at the ORSA/TIMS Special Interest Group on Applied Probability Conference onStatistical and Computational Problems in Probability Modeling, held at Williamsburg, Virginia, January 7–9, 1985. The theme of this paper is twofold. First, that members of the above group should be seriously concerned with issues of statistical inference — they should not stop short upon proposing a probability model. Second, that inference be undertaken via a strict adherence to the rules of probability — the Bayesian paradigm. To underscore a need for emphasizing the first theme, it may be pertinent to note that an overwhelming majority of the papers dealing with statistical and inferential issues that were presented at this conference were authored by members who did not claim to belong to the ORSA/TIMS Special Interest Group on Applied Probability. The lecture was followed by a panel discussion, with Drs. Lyle Broemeling and Edward Wegman of the Office of Naval Research as discussants. Dr. Robert Launer of the Army Research Office served as a moderator. Discussions from the floor included comments by Professors D. Harrington of Harvard University, E. Parzen of Texas A & M University, and R. Smith of Imperial College, London, England. This paper, and the comments of the panelists, are published in this volume of theAnnals of Operations Research, which is going to serve as a Proceedings of the Conference.
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  • 11
    Electronic Resource
    Electronic Resource
    Springer
    Water resources management 1 (1987), S. 45-56 
    ISSN: 1573-1650
    Keywords: Cost-benefit analysis ; uncertainty ; irrigation projects ; ex post project evaluation ; quadratic programming
    Source: Springer Online Journal Archives 1860-2000
    Topics: Architecture, Civil Engineering, Surveying , Geography
    Notes: Abstract Experience with irrigation projects in developing countries has shown that a substantial number of projects have not been able to achieve the planned change in the cropping pattern envisaged at appraisal with the implication of a lower ex post economic rate of return. This paper shows that this may be caused by the questionable assumption of economic certainty built in the benefit-cost analysis of almost all projects. The paper begins with a brief overview of the treatment of economic uncertainty in irrigation projects and then demonstrates how uncertainty may inhibit adoption of high-value crops and result in lower project benefits. Finally, the sources of revenue and cost uncertainty are explicitly illustrated with actual irrigation project data.
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