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Decision Analysis
Published in Richard L. Shell, Ernest L. Hall, Handbook of Industrial Automation, 2000
The assertion that the decision maker chooses an alternative action as if he maximizes his expected utility is called the expected utility hypothesis of von Neumann and Morgenstern [2]. In other words, the decision maker chooses an action according to the normative rule () a≻b⇔Ea>Eba~b⇔Ea=Eb
Behavioral Economics
Published in Wayne Patterson, Cynthia E. Winston-Proctor, Behavioral Cybersecurity, 2019
Wayne Patterson, Cynthia E. Winston-Proctor
Economic psychology emerged in the twentieth century. Expected utility and discounted utility models began to gain acceptance, generating testable hypotheses about decision-making given uncertainty and intertemporal consumption, respectively. Further steps were taken by Maurice Allais, for example, in setting out the Allais paradox, a decision problem he first presented in 1953 that contradicted the expected utility hypothesis. We will see some of Allais' examples below (Allais, 1953).
Price-Based Scheduling for Gencos
Published in João P. S. Catalão, Electric Power Systems, 2017
Govinda B. Shrestha, Songbo Qiao
Gencos may further utilize forward contracts to manage risk. The hedging method used in this study is based on Daniel Bernoulli’s (1738) expected utility hypothesis on risk behavior, which was axiomized in 1944 by John von Neumann and Oskar Morgenstern [23]. Hedging with contract changes the profit in each price scenario s by Δ∏i,s.
A mean–variance acreage model
Published in Applicable Analysis, 2022
In economics, game theory, and decision theory, the expected utility hypothesis, concerning people's preferences under uncertainty, is a general approach to decision making under risk. Initiated by Daniel Bernoulli in 1738, the von Neumann-Morgenstern utility theorem provided a sound theoretical basis for expected utility theory in 1947. In general, mean–variance (MV) analysis is inconsistent with main axioms of rational choice theory, most notably with monotonicity axiom. Many efforts have been made to reconcile the two regimes [40–43].