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Results tagged with decision-theory
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user 59
the mathematical study of strategies for optimal decision-making between options involving different risks or expectations of gain or loss depending on the outcome.
6
votes
1
answer
200
views
Consequences of hyperbolic discounting
In reading the Wikipedia article about hyperbolic discounting, I read that it says that hyperbolic discounting created strange consequences:
But note, the time inconsistency of this behavior has s …
- 9,385
7
votes
2
answers
552
views
Definition of Absolute Risk Aversion
In its Wikipedia article, absolute risk aversion is defined as
$ARA = -\frac{u''(c)}{u'(c)}$. However, I have alternatively seen absolute risk aversion
defined as half the decrease in consumption tha …
- 9,385
11
votes
2
answers
1k
views
Can the Machina Paradox be solved by expanding the choice set?
In another question, the Machina paradox is mentioned as a possible counterexample to the expected utility model:
Adding to the list of paradoxes, consider Machina's paradox. It is described in Ma …
- 9,385
17
votes
2
answers
7k
views
What is the importance of Epstein-Zin preferences?
I've heard that there is a lot of work being done recently that applies Epstein-Zin preferences. The Wikipedia page doesn't seem to be very full.
Why are Epstein-Zin preferences important?
How does …
- 9,385
3
votes
1
answer
207
views
What's is the purpose of "conditional preferences" as specified in Savage's framework?
In this paper, "Savages’ Subjective Expected Utility Model" by Edi Karni, he gives a definition of "conditional preferences." See here:
What situation is this supposed to capture? It seems like it …
- 9,385
8
votes
4
answers
211
views
What are different ways of specifying utility and decision making?
This question is related to this question about the Machina paradox and about the expected utility model. In this question, I'd like to know a little more about various or even competing ways of speci …
- 9,385
7
votes
6
answers
2k
views
What are alternative measures of risk?
In finance, the variance of the returns of a security are used as a proxy for the associated risk of the security. I've seen some books include sentences like "if you take variance as a measure of ris …
- 9,385