scholarly journals Quantifying Risk Perception: The Entropy Decision Risk Model Utility (EDRM-U)

Systems ◽  
2020 ◽  
Vol 8 (4) ◽  
pp. 51
Author(s):  
Thomas Monroe ◽  
Mario Beruvides ◽  
Víctor Tercero-Gómez
Keyword(s):  
Risk Perception ◽  
Expected Utility ◽  
Risk Model ◽  
A Priori ◽  
Expected Utility Theory ◽  
Power Utility ◽  
Initial Wealth ◽  
The Subject ◽  
Conducting Research ◽  
Exponential Power

Risk perception can be quantified in measurable terms of risk aversion and sensitivity. While conducting research on the quantization of programmatic risk, a bridge between positive and normative decision theories was discovered through the application of a novel a priori relationship between objective and subjective probabilities and the application of Bernoulli’s expected utility theory. The Entropy Decision Risk Model (EDRM) derived using the Kullback–Liebler entropy divergence from certainty serves as a translation between objective and subjective probability, referred to as proximity, and has proven its applicability to various positive decision theories related to Prospect Theory. However, EDRM initially assumes the validity of the standard exponential power utility function ubiquitous to positive decision theory models as the magnitude of a choice to isolate and validate proximity. This research modifies the prior model by applying Daniel Bernoulli’s expected utility as the measure of choice magnitude in place of power utility. The revised model, EDRM Utility (EDRM-U), predicts the subject choices for both small and large ranges of values and shows that Prospect Theory’s neutral reference point is actually centered about an assumed initial wealth value, called neutral wealth, that correlates to a power utility exponent value. This hypothesis is confirmed by demonstrating that EDRM-U presents an equivalent or better correlation with prior research in eleven landmark studies of college students spanning more than 26 years and comprising over 300 problems, including those with widely varying values. This research contributes to the fields of risk management and decision engineering by proposing a decision model that behaves according to both positive and normative decision theories and provides measures of risk perception.

scholarly journals Derivation and Application of the Subjective–Objective Probability Relationship from Entropy: The Entropy Decision Risk Model (EDRM)

Systems ◽  
2020 ◽  
Vol 8 (4) ◽  
pp. 46 ◽  
Author(s):  
Thomas Monroe ◽  
Mario Beruvides ◽  
Víctor Tercero-Gómez
Keyword(s):  
Prospect Theory ◽  
Subjective Probability ◽  
Risk Model ◽  
Energy State ◽  
Evaluation Model ◽  
A Priori ◽  
Ideal Gas ◽  
Objective Probability ◽  
Power Utility ◽  
Decision Weights

The uncertainty, or entropy, of an atom of an ideal gas being in a certain energy state mirrors the way people perceive uncertainty in the making of decisions, uncertainty that is related to unmeasurable subjective probability. It is well established that subjects evaluate risk decisions involving uncertain choices using subjective probability rather than objective, which is usually calculated using empirically derived decision weights, such as those described in Prospect Theory; however, an exact objective–subjective probability relationship can be derived from statistical mechanics and information theory using Kullback–Leibler entropy divergence. The resulting Entropy Decision Risk Model (EDRM) is based upon proximity or nearness to a state and is predictive rather than descriptive. A priori EDRM, without factors or corrections, accurately aligns with the results of prior decision making under uncertainty (DMUU) studies, including Prospect Theory and others. This research is a first step towards the broader effort of quantifying financial, programmatic, and safety risk decisions in fungible terms, which applies proximity (i.e., subjective probability) with power utility to evaluate choice preference of gains, losses, and mixtures of the two in terms of a new parameter referred to as Prospect. To facilitate evaluation of the EDRM against prior studies reported in terms of the percentage of subjects selecting a choice, the Percentage Evaluation Model (PEM) is introduced to convert choice value results into subject response percentages, thereby permitting direct comparison of a utility model for the first time.

scholarly journals Does prospect theory warrant a paradigm shift in the economics of risk?

2014 ◽  
Vol 9 (2) ◽  
pp. 230-243 ◽  
Author(s):  
PL Mohapi
Keyword(s):  
Prospect Theory ◽  
Expected Utility ◽  
Paradigm Shift ◽  
Utility Theory ◽  
Expected Utility Theory ◽  
Scientific Reason ◽  
The Subject ◽  
Theory Framework

This paper assesses whether a paradigm shift should be made from expected utility framework to prospect theory framework – in the economics of choice under risk. A brief overview of the subject is outlined, starting with expected utility theory and noting its descriptive limitations. Proposed theories to make up for these limitations is also provided. Prospect theory emerged as the most serious challenger to expected utility theory. A review of some descriptive predictions of prospect theory, suggests that there is no scientific reason why expected utility should not be ousted from dominance by prospect theory. The shift to prospect theory however is not without costs. Conceptual complexities and non-universality of application associated with prospect theory should be embraced with the shift while not entirely abandoning expected utility theory.

Educación y valores

2014 ◽  
pp. 83
Author(s):  
Sabino de Juan López
Keyword(s):  
Key Words ◽  
A Priori ◽  
Palabras Clave ◽  
The Subject ◽  
The Relationship ◽  
Problem Of The Criterion

RESUMEN En el artículo se ofrece una reflexión en torno a la educación y valores. Tras una referencia a los diferentes sentidos en que se puede plantear el problema en función de la forma como se puede entender la relación entre los dos sustantivos “educación” y “valores”, la reflexión se centra en algunos problemas relacionados con los valores en cuanto contenidos de la educación. Primeramente se refiere al problema del criterio en función del cual determinar los valores de la educación, concluyendo en que el criterio no podía ser ni de carácter a priori, ni empírico, sino “sintético”. A continuación, se afronta el problema del principio, de la fuente de los valores, o la concreción del criterio de los valores de la educación, entendiendo que éstos deberían ser determinados a partir del sujeto de la educación. Se concluye con la referencia a una exigencia de los valores de la educación, la configuración de una totalidad unitaria e interactiva. Palabras clave: educación, valores, fuente de valores, integración, cultura EDUCATION AND VALUES ABSTRACT The article offers a reflection on education and values. After a reference to the different senses in which one can pose the problem in terms of how you can understand the relationship between the two nouns “education” and “values”, reflection focuses on some problems related to the values in the contents of education. First, it concerns the problem of the criterion against which to determine the values of education, concluding that the criterion could be neither a priori in nature, not empirical, but “synthetic”. Herein, the problem of principle is faced, the source of values, or the realization of the criterion of the values of education, understanding that these should be determined from the subject of education. It concludes with the reference of a requirement of the values in education, setting up a unitary and interactive whole. Key Words: education, values , power values , integration, culture

Self and Selves

2017 ◽  
Author(s):  
Ralph C.S. Walker
Keyword(s):  
Personal Identity ◽  
Moral Philosophy ◽  
A Priori ◽  
The Status ◽  
The Subject ◽  
Synthetic A Priori

Kant is committed to the reality of a subject self, outside time but active in forming experience. Timeless activity is problematic, but that can be dealt with. But he holds that the subject of experience is not an object of experience, so nothing can be known about it; this raises a problem about the status of his own theory. But he ought to allow that we can know of its existence and activity, as preconditions of experience: the Critique allows that synthetic a priori truths can be known in this way. However, its identity conditions remain unknowable. Kant’s unity of apperception shares much with Locke’s continuity of consciousness, but does not determine the identity of a thing. Personal identity is bodily identity. Only Kant’s moral philosophy justifies recognizing other selves; it could warrant ascribing a similar status to animals.

scholarly journals Cumulative Prospect Theory Version with Fuzzy Values of Outcome Estimates

Risks ◽  
2021 ◽  
Vol 9 (4) ◽  
pp. 72
Author(s):  
Oleg Uzhga-Rebrov ◽  
Peter Grabusts
Keyword(s):  
Prospect Theory ◽  
Expected Utility ◽  
Utility Theory ◽  
Expected Utility Theory ◽  
Cumulative Prospect Theory ◽  
Development History ◽  
Decisions Under Risk ◽  
History Of ◽  
Main Factors ◽  
Theoretical Foundations

Choosing solutions under risk and uncertainty requires the consideration of several factors. One of the main factors in choosing a solution is modeling the decision maker’s attitude to risk. The expected utility theory was the first approach that allowed to correctly model various nuances of the attitude to risk. Further research in this area has led to the emergence of even more effective approaches to solving this problem. Currently, the most developed theory of choice with respect to decisions under risk conditions is the cumulative prospect theory. This paper presents the development history of various extensions of the original expected utility theory, and the analysis of the main properties of the cumulative prospect theory. The main result of this work is a fuzzy version of the prospect theory, which allows handling fuzzy values of the decisions (prospects). The paper presents the theoretical foundations of the proposed version, an illustrative practical example, and conclusions based on the results obtained.

Norm-Endorsement Utilitarianism and the Nature of Utility

1996 ◽  
Vol 12 (2) ◽  
pp. 165-182 ◽  
Author(s):  
Jonathan Baron
Keyword(s):  
Expected Utility ◽  
Utility Theory ◽  
Expected Utility Theory ◽  
Interpersonal Comparison ◽  
Moral Norms ◽  
Moral Principles ◽  
Future Goals ◽  
Equal Consideration

In this article, I shall suggest an approach to the justification of normative moral principles which leads, I think, to utilitarianism. The approach is based on asking what moral norms we would each endorse if we had no prior moral commitments. I argue that we would endorse norms that lead to the satisfaction of all our nonmoral values or goals. The same approach leads to a view of utility as consisting of those goals that we would want satisfied. In the second half of the article, I examine the implication of this view for several issues about the nature of utility, such as the use of past and future goals. The argument for utilitarianism is not completed here. The rest of it requires a defense of expected-utility theory, of interpersonal comparison, and of equal consideration (see Baron, 1993; Broome, 1991).

Housing Market Search Behavior and Expected Utility Theory: 1. Measuring Preferences for Housing

1982 ◽  
Vol 14 (5) ◽  
pp. 681-698 ◽  
Author(s):  
T R Smith ◽  
W A V Clark
Keyword(s):  
Los Angeles ◽  
Housing Market ◽  
Expected Utility ◽  
Utility Theory ◽  
House Price ◽  
Expected Utility Theory ◽  
Utility Functions ◽  
Future Search ◽  
Space Construction ◽  
Market Search

This is the first of two papers examining housing market search in a Los Angeles market. In this paper, we derive and analyze utility functions for housing for each individual in two groups of subjects. The utility functions are derived from an experimental setting, in which house price, floor space, construction quality, and neighborhood quality are varied. The functions are found to be essentially compatible with a linear model. They are used to predict the ratings of real houses and the ratings of the expected value of future search. These ratings are compared with actual ratings obtained from subjects during search. The results suggest that the actual or predicted ratings may be employed in a direct test of a simple expected utility theory of search, and further research along these lines appears justified.

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