Making a case for robust optimization models
Article Abstract:
The use of robust optimization in risk averse decision making is investigated. Popular techniques for handling uncertainty in optimization models are compared and contrasted. The optimization of wealth within the context of robust optimization models is given particular attention. Such an optimization has much use in a theoretical sense, since it can act as a prescriptive theory for making decisions under uncertainty through its consistent and direct handling of risk. Practical use of the approach in mathematical programming poses several impediments, although some are being resolved as the computational speed of computers gets faster, as mathematical programmers become more adept at solving the nonlinear stochastic optimization model and as appreciation for the relevance of directly including stochastic elements in the model increases.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1997
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An empirical study on intertemporal decision making under risk
Article Abstract:
Time preference in cases of certainty and risk are compared. The manner in which people choose between two risky future outcomes and in which people specify certainty equivalents to match risky future outcomes are analyzed. Violations of the stationary axiom are found to be restricted to matching behavior for both certainty and risk. Results are also found to be sensitive to the elicitation procedure employed. Data indicate that exponential discounting is a valid description of pairwise choice, while hyperbolic discounting describes pricing behavior more accurately. Results show that general principles known to cover the evaluation of alternatives by matching do not seem to produce valid predictions for choice.
Publication Name: Management Science
Subject: Business, general
ISSN: 0025-1909
Year: 1997
User Contributions:
Comment about this article or add new information about this topic:
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