scholarly journals BIDDING DECISION IN LAND AUCTION USING PROSPECT THEORY

2015 ◽  
Vol 19 (2) ◽  
pp. 186-205 ◽  
Author(s):  
Yanyan PENG ◽  
Xinwang LIU
Keyword(s):  
Prospect Theory ◽  
Reference Point ◽  
Great Influence ◽  
Cumulative Prospect Theory ◽  
Decision Makers ◽  
Appearance Time ◽  
Sequential Model ◽  
Decision Under Risk ◽  
Decision Cycle ◽  
Bidding Price

Land auction is widely practiced in company and government decisions, especially in China. Bidders are always faced with two or more auctions in the period of a decision cycle. The outcome of the auction is under high risk. The bidder's risk attitude and preference will have a great influence on his/her bidding price. Prospect theory is currently the main descriptive theory of decision under risk. In this paper, we will consider the preferences of the decision-makers in land bidding decisions with the multi-attribute additive utility and reference point method in cumulative prospect theory. Three land auction models are proposed based on the appearance time of the land auctions. The simultaneous model uses cumulative prospect theory without considering the relationships between the auctions. The time sequential model involves the exchange auction decisions at different time with the third-generation prospect theory. The event sequential model further considers the reference point prediction in sequential land auction decisions. The three models can help the decision-makers make better bidding price decision when they are faced with several land auctions in the period of a decision cycle. A case study illustrates the processes and results of our approaches.

Decision-making of investment in navigation safety improving schemes with application of cumulative prospect theory

2018 ◽  
Vol 232 (6) ◽  
pp. 710-724 ◽  
Author(s):  
Lei Wang ◽  
Qing Liu ◽  
Tongle Yin
Keyword(s):  
Decision Making ◽  
Prospect Theory ◽  
Investment Decision ◽  
Cumulative Prospect Theory ◽  
Decision Makers ◽  
Investment Decision Making ◽  
Risk Appetite ◽  
Safety Investment ◽  
Navigation Safety

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.

Subjective Skewness of Return as an Explanation of the Optimal Choice between Gambles in Cumulative Prospect Theory

2013 ◽  
Vol 2 (2) ◽  
pp. 97-108
Author(s):  
David Peel
Keyword(s):  
Utility Function ◽  
Prospect Theory ◽  
Expected Utility ◽  
Cumulative Prospect Theory ◽  
Optimal Choice ◽  
Decision Makers ◽  
Expected Return ◽  
Positive Skewness

Given that the expected return and variance of return of two gambles are equal  the hypothesis that the gamble with the greater  positive skewness of return will be chosen by an expected utility maximiser is appealing. However the hypothesis is  not, in general, correct. Brockett and Garven (1998) and Brocket and Kahane (1992) demonstrate this both theoretically and by constructing counter examples.A particularly revealing example is the following one constructed by Brockett and Kahane.  Gamble A has the two outcomes 2.45 and 7.49 with probabilities 0.5141 and 0.4859 respectively. Gamble B has the three outcomes 0, 4.947 and 10 with probabilities 0.12096, 0.750085 and 0.128955 respectively. Even though gamble A exhibits  lower expected return,  a higher variance and lower  positive skewness than gamble B it is preferred to gamble B by an expected utility maximiser on the basis of any standard utility function  such as power, log or exponential.  Consequently in this  example of theirs the expected utility maximiser exhibits an aversion to higher expected return and higher skewness and a preference for higher variance. As noted by Brockett and Kahane these results cannot be dismissed as decision makers “trading” variance for mean or skewness or having a strange idiosyncratic utility function.

scholarly journals Extended GRA Method Based on Cumulative Prospect Theory with Probabilistic Hesitant Fuzzy Information for MAGDM and its Application to Green Supplier Selection

2021 ◽  
Author(s):  
Ningna Liao ◽  
Guiwu Wei ◽  
Xudong Chen
Keyword(s):  
Prospect Theory ◽  
Simulation Analysis ◽  
Cumulative Prospect Theory ◽  
Decision Makers ◽  
Risk Appetite ◽  
Probabilistic Values ◽  
Grey Relational ◽  
Decision Elements ◽  
Different Levels ◽  
Selection Of

Abstract An extended grey relational analysis (GRA) method is introduced in this article to reduce the limitations of the classical GRA method using the cumulative prospect theory (CPT) which takes into account psychological factors such as the risk appetite of decision makers. Moreover, the circumstance of probabilistic hesitant fuzzy (PHF) which assigns probabilistic values to DMs’ different levels of hesitation shows its superiority when making decisions in a complex environment. Meanwhile the weighting vector of each attribute is calculated according to the entropy which is calculated by the different prospect decision elements. Thus, in this paper, we proposed an extended GRA method based on cumulative prospect theory in the probabilistic hesitant fuzzy circumstance and applying the model in the selection of the green supplier. At last, the comparative analysis and the simulation analysis are made to show the practicability of this newly proposed method.

Research on Traffic Assignment Model and Algorithm Based on Cumulative Prospect Theory under Uncertain Factors

2020 ◽  
pp. 036119812097270
Author(s):  
Junxiang Xu ◽  
Jingni Guo ◽  
Jin Zhang
Keyword(s):  
Prospect Theory ◽  
Reference Point ◽  
Traffic Assignment ◽  
Supply And Demand ◽  
Cumulative Prospect Theory ◽  
Traffic Network ◽  
Model Based ◽  
Assignment Model ◽  
Algorithm Comparison ◽  
Uncertain Supply

Current traffic assignment theories and methods are studied. To address the limitations of existing models and algorithms in solving the traffic assignment problems under uncertain supply and demand, a traffic assignment model based on the cumulative prospect theory is proposed. Firstly, the problem of uncertain supply and demand of the traffic network is described, and an improved traffic impedance function of road sections is proposed. Then, the reference point of generalized cost and the reference point of the dynamic section risk are set up, and the comprehensive cumulative prospect value function considering the preference coefficient of the reference point is given. A traffic assignment model based on the cumulative prospect theory is constructed, and an isolation niche genetic simulated annealing algorithm is designed to solve the model. Finally, with the highway traffic network in the Sichuan-Tibet region as an example, the process of network traffic equilibrium based on the cumulative prospect theory under the fixed and changing network structure is studied respectively, and parameter sensitivity and algorithm comparison are analyzed. The results show that the proposed traffic assignment model based on the cumulative prospect theory provides a good idea for solving the traffic assignment problem under uncertain supply and demand, and is of theoretical significance and application value.

scholarly journals Dynamic Hybrid Multiple Attribute Decision-Making Problem Based on Reference Point Adaptation

2019 ◽  
Vol 2019 ◽  
pp. 1-8
Author(s):  
Wei-Min Ma ◽  
Hui Zhang ◽  
Bing-Zhen Sun ◽  
Neng-Li Wang ◽  
Hai-Yan Zhao
Keyword(s):  
Decision Making ◽  
Prospect Theory ◽  
Reference Point ◽  
Multiple Attribute Decision Making ◽  
Optimal Choice ◽  
Reference Points ◽  
Decision Makers ◽  
Multiple Attribute ◽  
Decision Making Problem ◽  
Dynamic Hybrid

Individuals’ decision-making depends on reference points in prospect theory. This research considers the bounded rationality of decision makers and constructs a dynamic hybrid multiple attribute decision-making (DHMADM) model. Unlike existing models, the DHMADM model focuses on dynamic reference point, which has been proven in prospect theory. This research presents the effects of reference point adaptation on decision-making through model calculation. The optimal choice of decision makers changed with the change of the reference point in the DHMADM model. By experiment, we found that the DHMADM model considering reference point adaptation can more accurately express the final choice of decision makers than models only considering the static reference point.

scholarly journals Path Choice of Emergency Logistics Based on Cumulative Prospect Theory

2019 ◽  
Vol 2019 ◽  
pp. 1-11
Author(s):  
Chang-feng Zhu ◽  
Zheng-kun Zhang ◽  
Qing-rong Wang
Keyword(s):  
Prospect Theory ◽  
Risk Attitude ◽  
Cumulative Prospect Theory ◽  
Decision Makers ◽  
Logistics Network ◽  
Moment Estimation ◽  
Emergency Logistics ◽  
The Moment ◽  
Decision Making Model ◽  
Uncertainty Environment

We study the problem of path choice for emergency logistics in this paper. Based on the uncertainty environment during the path choice from emergency logistics network and the bounded rationality of decision makers, cumulative prospect theory is introduced to study the problem of emergency logistics path choice with comprehensive consideration of path properties and risk attitude of decision makers. In addition, the decision behavior of decision maker with the attitude of risk seeking and risk aversion under limited rationality is comprehensively analyzed respectively. Based on the choice behavior, a strategy to demarcate the value of reference point value is also proposed, and an optimization model is used to obtain the combined weight based on the moment estimation. Finally, both the theory and model are verified by calculation and compared analysis in a case study. In addition, perturbation analyses of related parameter are carried out to further reveal the influence mechanism between the prospect value of each path and related parameters. The result shows that the decision-making model can make emergency logistics path choice with higher efficiency and reliability under different complex interference conditions.

scholarly journals Multi-stage emergency decision-making method based on cumulative prospect theory and intuitionistic fuzzy number

2020 ◽  
Author(s):  
Junxiang Xu ◽  
Jingni Guo ◽  
Jin Zhang ◽  
Weihua Liu ◽  
Hui Ma
Keyword(s):  
Decision Making ◽  
Prospect Theory ◽  
Cumulative Prospect Theory ◽  
Reference Points ◽  
Decision Makers ◽  
Dynamic Adjustment ◽  
Multi Stage ◽  
Emergency Decision Making ◽  
Emergency Decision ◽  
The Impact

Aiming at the problem where the dynamic adjustment of reference points under the impact of decision makers’ emotions may lead to different decision-making results, this research proposes a multi-stage emergency decision-making method with the emotion updating mechanism of decision makers. The method of setting dynamic reference points under the influence of decision-makers' emotions is given in this study, and the scenario value of each stage of emergency is calculated by using cumulative prospect theory, so as to describe the emotion renewal mechanism of decision-makers. The scenario weights of each stage are calculated, and the prospect values of alternatives at each stage are calculated according to the prospect value, input costs and start-up time values of the alternatives. Furthermore, by giving a calculation method of the weight of each stage, the overall values of the alternatives are calculated and the ranking of the alternatives is given. Taking Sichuan Tibet emergency rescue in China as an case analysis, the scientific rationality of the theory proposed in this paper is verified.

scholarly journals Identification of cumulative prospect theory parameters for mode choice model

2019 ◽  
Vol 270 ◽  
pp. 03012
Author(s):  
Sylvia Indriany ◽  
Ade Sjafruddin ◽  
Aine Kusumawati ◽  
Widyarini Weningtyas
Keyword(s):  
Prospect Theory ◽  
Travel Time ◽  
Public Transportation ◽  
Reference Point ◽  
Choice Model ◽  
Stated Preference ◽  
Mode Choice ◽  
Cumulative Prospect Theory ◽  
Transportation Risk ◽  
Mode Choice Model

The use of Cumulative Prospect Theory (CPT) in decision making related to transportation risk is still much debated. Mainly because of the travel and socio-economic characteristics of the traveller it possible for different responses to the specified Reference Point (RP) as well as the loss aversion. This difference can be seen from the value of Cumulative Prospect Theory parameters. Therefore, this paper will discuss about the determination of parameters CPT which affect public transportation mode choice model in the course of work trip activity. The reference point as an essential part of this study is determined based on the average travel time of commuter worker from South Tangerang City to Jakarta. Data obtained from stated preference survey, Feeder Busway/Busway and Commuter Line Jabodetabek as mode alternative and travel time attribute as a risk factor. The Binomial Logit model which has transformed utility distribution and probability with CPT and the Least Square Method to be obtained the parameters. Finally, some conclusions can be drawn that the CPT parameters produced by this study, have closed the range of value requirements in the CPT theory. So that the parameter value can be used to model the probability of mode choice with the risk of travel time in the study area.

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