scholarly journals Until the Bitter End: On Prospect Theory in a Dynamic Context

2015 ◽  
Vol 105 (4) ◽  
pp. 1618-1633 ◽  
Author(s):  
Sebastian Ebert ◽  
Philipp Strack

We provide a result on prospect theory decision makers who are naïve about the time inconsistency induced by probability weighting. If a market offers a sufficiently rich set of investment strategies, investors postpone their trading decisions indefinitely due to a strong preference for skewness. We conclude that probability weighting in combination with naïveté leads to unrealistic predictions for a wide range of dynamic setups. (JEL D81, G02, G11)

2021 ◽  
pp. 1-18
Author(s):  
Tao Zhang ◽  
Shizheng Li ◽  
Jin Wang

China has proposed medical couplet body to alleviate residents’ difficulties in seeking medical treatment, and the future development ability of medical couplet body has gradually become a research interest. On the basis of prospect theory, this study constructs a comprehensive evaluation index system with qualitative and quantitative indexes, clear hierarchy, and diverse attribute characteristics. The development ability of medical couplet body is also comprehensively and systematically evaluated. In addition, the evidential reasoning method is proposed on the basis of the equivalent transformation of prospect value. Furthermore, the validity and feasibility of the model are proven through experiments, and the influence of decision makers’ risk attitude on the evaluation results is discussed.


Author(s):  
Yinyun Yu ◽  
Congdong Li

AbstractWhether the design of product innovation can highly match the customer demand is the key to extend the product life cycle, and it is also the basis for enterprises to carry out continuous production and operation. The first step of product innovation is to identify the relationship between customer demands and design factors of product innovation. This paper focuses on the problems of market control, due to the wide range and deep level of knowledge from customer demands in the process of product innovation. To better meet the customer demands, combined with Entropy Theorem, Prospect Theory and Grey Correlation Method, this paper puts forward a method of importance of design factors of product innovation considering customer demands. First, the Entropy Theorem and Prospect Theory are introduced to calculate the importance of demand factors from the perspective of customers and experts. Second, the priority ranking of design factors of product innovation from the perspective of customer demand is calculated through Gray Correlation Method and Fuzzy TOPSIS. Finally, this method is availability and feasibility thought taking the continuous innovation of electric vehicle as an example.


2021 ◽  
Author(s):  
Agnieszka Tymula ◽  
Yuri Imaizumi ◽  
Takashi Kawai ◽  
Jun Kunimatsu ◽  
Masayuki Matsumoto ◽  
...  

Research in behavioral economics and reinforcement learning has given rise to two influential theories describing human economic choice under uncertainty. The first, prospect theory, assumes that decision-makers use static mathematical functions, utility and probability weighting, to calculate the values of alternatives. The second, reinforcement learning theory, posits that dynamic mathematical functions update the values of alternatives based on experience through reward prediction error (RPE). To date, these theories have been examined in isolation without reference to one another. Therefore, it remains unclear whether RPE affects a decision-maker's utility and/or probability weighting functions, or whether these functions are indeed static as in prospect theory. Here, we propose a dynamic prospect theory model that combines prospect theory and RPE, and test this combined model using choice data on gambling behavior of captive macaques. We found that under standard prospect theory, monkeys, like humans, had a concave utility function. Unlike humans, monkeys exhibited a concave, rather than inverse-S shaped, probability weighting function. Our dynamic prospect theory model revealed that probability distortions, not the utility of rewards, solely and systematically varied with RPE: after a positive RPE, the estimated probability weighting functions became more concave, suggesting more optimistic belief about receiving rewards and over-weighted subjective probabilities at all probability levels. Thus, the probability perceptions in laboratory monkeys are not static even after extensive training, and are governed by a dynamic function well captured by the algorithmic feature of reinforcement learning. This novel evidence supports combining these two major theories to capture choice behavior under uncertainty.


2021 ◽  
Author(s):  
◽  
Edward Johnson

<p><b>The gold mining industry in Ghana is characterised by complexity in terms of its extended/sequential operations, its system-wide reach, its multiple stakeholders, and the variety of formal and informal organisations that constitute the industry. Perceptions of the industry differ considerably amongst stakeholders, depending on their stakes and interests, knowledge, understanding, involvement and agency within or without the sector. Studies of the industry to date have overlooked these diverse viewpoints and used limited-scope, single-frame analyses. However, they have highlighted wide-ranging industry issues that impact the diversity of stakeholders, which could benefit from a fuller and more comprehensive analysis.</b></p> <p>This study addresses this need by adopting a multi-framing systems-based approach. Data was examined and analysed through a variety of systems-based lenses and frames, including a stakeholder analysis (SA) frame, a causal loop modelling (CLM) frame, supply chain analysis (SCA) frame and the Theory of Constraints (TOC) Thinking Processes analytical frames lenses. First the Current Reality Tree (CRT) tool of the Theory of Constraints (TOC) was used to synthesise information from the literature examined, providing an initial provisional CRT model. Interview data was collected by sharing and seeking feedback to the CRT model at multiple levels of the industry, giving voice to stakeholders throughout the sector. Subsequent analysis used all the modelling frameworks mentioned above in a multi-framing analysis.</p> <p>In particular, the evaporating cloud (EC) tool from TOC was used to structure and develop potential solutions to conflict highlighted by the literature review, the SA, SCA and CLM. Building on this, a final CRT was developed, and a goal tree (GT) used to design the desired future whilst employing the future reality tree (FRT) to test the plausibility of solutions from the EC to deliver the desired future. The prerequisite tree (PRT) was then used to identify obstacles and intermediate objectives that must be overcome for successful transition to the desired future.</p> <p>Insights from the research shows a desire by multi-national large scale-gold mining companies and government alike to minimise adverse impacts and maximise the sector’s outcomes for key stakeholders, including those at the community level. However, the research has documented many instances of actions taken to address issues and improve outcomes that have instead resulted in unresolved dilemmas and paradoxes, failing to achieve desired outcomes.</p> <p>A number of factors have been identified as being responsible for these situations. Key amongst them is a limited understanding to deliver desired outcome for stakeholders without compromises, a focus on short-term goals, no collective effort, and arms-length/win-lose relationships amongst the Ghanaian stakeholders of the industry.</p> <p>The study’s concluding findings and results allow decision makers to benefit significantly from the study through its recommendations and showcasing of tools that may allow them to make sound decisions and address endogenous and exogenous cause-effect relationships limiting desirable outcomes from actions taken.</p> <p>Theoretical and knowledge-based contributions are made by conceptualising and offering evidence for three key factors or dimensions that can explain a significant number of issues limiting desirable outcomes for stakeholders of the gold mining industry. These include difficulty to transition from theory (espoused aims) to practice, a relative focus on local optima (silo thinking), poor monitoring (lack of evaluation), and a control culture. Methodological contributions are made by demonstrating the application of a multi-framing approach in a more organic and iterative manner as opposed to its use in a designed sequence, working down through layers of various systemic levels of an industry (in this case, the gold mining industry in Ghana). By so doing, the study builds on and extends the practicality of the multi-framing approach and stimulates further research in the field.</p> <p>In terms of its contribution to practice, the study provides Government, political and mining sector policy decision makers, and other interested actors, with a platform for understanding the sector in order to support their decision making about the industry to ultimately improve outcomes for key stakeholders. In particular, the study allows mining sector policy decision makers and other stakeholders to recognise complexity, uncertainty and conflicts that are embedded in the mining system and in their everyday decision-making activities about the industry. It also allows these stakeholders to become more aware that such issues can be addressed and improved by identifying and focusing on one or few underlying causes.</p> <p>This thesis draws on systems-based frameworks drawn both from functional management, for example, the supply chain and value chain frameworks of operations management and the stakeholder framework of strategic management, and from the broad domain of systems thinking (ST) and systems-based methodologies; and then focuses on the intersection of these frameworks in relation to the gold mining sector in Ghana. Due to the wide range of techniques applied, none are over-explored, creating potential for further research. On the other hand, with regard to explanations, depending on background, practitioners, and researchers familiar with some techniques may consider those sections over-explained. The researcher has sought a balance for the purpose of this study. Whilst limiting the scope of this work has been necessary in the context of doctoral study, topics ripe for future research are set out in the conclusion.</p>


1983 ◽  
Vol 40 (12) ◽  
pp. 2080-2091 ◽  
Author(s):  
Anthony T. Charles

A full analysis of optimal fisheries investment strategies must take into account high levels of uncertainty in future fishery returns, as well as irreversibility of investment in specialized, nonmalleable fishing fleets. A stochastic optimization model is analyzed using dynamic programming to determine optimal policy functions for both fleet investment and fish stock management within an uncertain environment. The resulting policies are qualitatively similar to those found in the corresponding deterministic case, but quantitative differences can be substantial. Simulation results show that optimal fleet capacity should be expected to fluctuate over a fairly wide range, induced by stochastic variations in the biomass. However, the performance of a linear-cost risk-neutral fishery is fairly insensitive to variations in investment and escapement policies around their optimum levels, so that economic optimization is "forgiving" within this context. A framework of balancing upside and downside investment risks is used here to explain the roles of several fishery parameters in relation to optimal investment under uncertainty. In particular, the intrinsic growth rate of the resource and the ratio of unit capital costs to unit operating costs are found to be key parameters in determining whether investment should be higher or lower under uncertainty.


Author(s):  
Lei Wang ◽  
Qing Liu ◽  
Tongle Yin

Navigation safety improving investment aims at mitigating risk and improving safety of shipping system, while decision-makers’ attitudes toward the uncertainty of shipping safety possess a characteristic of “bounded rationality.” To study the tendency of shipping safety investment decision-making with different risk perception and appetite, a decision-making method based on cumulative prospect theory is proposed in this article. First, we extract the decision attributes through analyzing the factors affecting shipping safety investment. Then, according to cumulative prospect theory, the value function and the probability weighting function for calculating cumulative prospect values of shipping investment attributes are given. Under the risk-based multi-attribute group decision-making framework, linear programming model and projection method are introduced to aggregate the weights of attributes and decision-makers, respectively. Furthermore, through a case study, the proposed methodology is utilized in Three Gorges Dam area, and the desirable safety investment scheme is determined from a set of candidate alternatives. The case study shows not only validity and feasibility of the decision-making approach but also the mechanism of shipping safety investment decision-making with consideration of the behavior characteristics of decision-makers such as reference dependence, risk appetite distortion, and loss aversion.


2019 ◽  
Vol 29 (Supplement_4) ◽  
Author(s):  
C You ◽  
V Lissillour ◽  
A Lefébure

Abstract Background The increase of life expectancy creates critical health needs that developed countries health systems have to deal with. They are also confronted to persistent health inequalities. A common vision of these issues may not be shared by the health care professionals, decision-makers and citizens. In the context of the launch of new public health laws in France, the French School of Public Health (EHESP) decided to offer a MOOC entitled “Public Health and Health System: transition and transformation” (2019). Objectives The MOOC intends to raise awareness and increase understanding of public health challenges. It is designed for a wide audience of professionals, decision-makers and citizens in the French speaking world. The content was designed by a multidisciplinary team of academics from the EHESP (N = 50) and a network of health professionals (N = 21). The 6 modules address major themes of the recent health policies, e.g. social and territorial inequalities in health, health care security, health pathways, innovation or health democracy. Results Over the course of 6 consecutive weeks, almost 7800 people have enrolled in this e-learning. They are provided with short teaching videos (109 capsules of 4-5’) and webinars, have access to a number of supplementary reading material and a variety of self-assessment. Active learning is enhanced via forum involving peers and teaching staff. The full course represents around 20 hours of teaching. So far, completion rate has attained 13% which compares well with usual rate for MOOCs. Participants include a wide range of professionals, students and citizens from 87 different countries (72% from France) and 50% had a master or higher degree. The overall satisfaction rate is 98%. Conclusions This MOOC attracted the attention of a wide and diverse audience regarding the major public health issues. Some public health agencies have expressed interest in implementing the MOOC into their professional development program of their staff. Key messages Health system reforms are constantly implemented to face new public health challenges. A multidisciplinary MOOC can help raise awareness and understanding of the issue being addressed by new policies.


2017 ◽  
Vol 168 ◽  
pp. 287-300 ◽  
Author(s):  
Vicky Henderson ◽  
David Hobson ◽  
Alex S.L. Tse

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