Research on Bias of Owner's Decision-Making in Risk-Sharing in Construction Project - A Perspective of Bounded Rationality

2013 ◽  
Vol 357-360 ◽  
pp. 2164-2170
Author(s):  
Yi Lin Yin ◽  
Zhi Chao Xu ◽  
Qing Song Zou
Keyword(s):  
Decision Making ◽  
Risk Management ◽  
Quantitative Analysis ◽  
Bounded Rationality ◽  
Loss Aversion ◽  
Risk Sharing ◽  
Dominant Strategy ◽  
Game Model ◽  
Ex Post ◽  
The Cost

Bounded rationality has an important impact on owners decision-making of risk-sharing in the project. Based on the hypothesis of bounded rationality, the paper established a risk-sharing game model concerning owners reference dependency and loss aversion, as well as conducted the quantitative analysis. The finding shows that comparing with the hypothesis of rationality, if taking the ex-post transaction cost as reference, when owner considers that the cost of risk management is smaller, the bounded rationality would make the owner prefer the proper risk-sharing; when owner considers that the cost of risk management is larger, the owner would prefer the improper risk-sharing; when the objective cost of risk management is larger than the ex-post transaction, the improper risk-sharing would be owners dominant strategy, and bounded rationality has no impact on owners decision-making of risk-sharing.

Quality Disclosure Under Consumer Loss Aversion

2020 ◽  
Author(s):  
Jianqiang Zhang ◽  
Krista J. Li
Keyword(s):  
Decision Making ◽  
Social Welfare ◽  
Loss Aversion ◽  
Consumer Surplus ◽  
Quality Disclosure ◽  
Disclosure Decisions ◽  
Future Outcomes ◽  
The Cost ◽  
Firm Profit ◽  
First Mover

Consumers experience a sense of loss when a product’s quality does not match their expectations. To alleviate consumer loss aversion (CLA), firms can disclose information to reduce consumers’ uncertainty about product quality and the resulting psychological loss. In this paper, we investigate the implications of CLA on firm profit, consumer surplus, and social welfare when firms endogenously make quality disclosure decisions. We find that CLA leads symmetric firms to disclose quality more often. Given that CLA weakly reduces consumers’ utility from buying a product and quality disclosure is costly, intuition suggests that CLA is detrimental to firms. We find that this intuition is true only in a monopoly. Surprisingly, CLA makes both firms in a competition better off. Moreover, CLA increases firms’ profit when they invest in quality disclosure instead of money-back guarantees to respond to CLA. We also find that CLA decreases consumer surplus and social welfare. Therefore, educating consumers to improve decision-making skills by deliberating on future outcomes and emotions can benefit firms at the cost of consumers and society. When firms disclose quality sequentially, CLA can discourage the follower from disclosing quality. A strong level of CLA increases the leader’s profit over the follower’s, thereby encouraging firms to be the first mover in quality disclosure. This paper was accepted by Juanjuan Zhang, marketing.

scholarly journals A Suggested Module for Risk Framework of Water Control Construction Projects using Qualitative and Quantitative Techniques

2020 ◽  
Vol 9 (3) ◽  
pp. 1448-1454
Keyword(s):  
Risk Factors ◽  
Risk Management ◽  
Quantitative Analysis ◽  
Construction Projects ◽  
Control Strategies ◽  
Significant Risk ◽  
Water Control ◽  
Global Challenge ◽  
Managing Risk ◽  
The Cost

Managing risk is an integral part of sound management and risk management helps to achieve projects objectives. Although the process of risk management is standardized to a great extent, risk control strategies depend on project circumstances and feature. One of the essential humanity’s challenges in the future, is surely ensuring water needs. Equitable and sustainable management of water resources is a major global challenge, and supply of clean fresh water is decreasing around all nations. Egypt is one of the countries hardest affected by climate change. Also challenges include population growth, increase in food demand and Lack of water and energy Leads to let managing risk for construction of water control structures projects on water streams in Egypt becomes more challenging and essential than ever before. Moreover, this study aims to show the effect of risk on cost and time targets for water control structure projects in Egypt .This study mainly identify a list of significant risk factors effecting on cost and time for these type of projects in Egypt through studying pervious publishing for risk management in construction projects and a questionnaire survey , then conducting a qualitative analysis using a Severity and Probability matrix (S/P matrix) techniques to assess the influence of risk factors and to isolate critical risk factors for a quantitative analysis. Finally, conducting a quantitative analysis by mean of Analytical Hierarchy Process (AHP) to determine the cost and time contingency, s the conclusion of this study shows that the cost contingency needed to account for the different critical risk factors is to increase the estimated cost by 12.35 % on the total estimated budget of the project. In addition that the time contingency needed to consider for different critical risk factors is to increase the scheduled time by 11.25% over the total originally scheduled of the project

scholarly journals Dopamine-dependent loss aversion during effort-based decision-making

2019 ◽  
Author(s):  
Xiuli Chen ◽  
Sarah Voets ◽  
Ned Jenkinson ◽  
Joseph M. Galea
Keyword(s):  
Parkinson’S Disease ◽  
Decision Making ◽  
Parkinson's Disease ◽  
Loss Aversion ◽  
Brain Regions ◽  
Decision Making Under Risk ◽  
Physical Effort ◽  
Clinical Disorders ◽  
The One ◽  
The Cost

AbstractFrom psychology to economics there has been substantial interest in how costs (e.g., delay, risk) are represented asymmetrically during decision-making when attempting to gain reward or to avoid punishment. For example, in decision-making under risk, individuals show a tendency to prefer to avoid punishment than to acquire the equivalent reward (loss aversion). Although the cost of physical effort has received significant recent attention due to the evaluation of motor costs being crucial in our daily decisions, it remains unclear whether loss aversion exists during effort-based decision-making. On the one hand, loss aversion may be hardwired due to asymmetric evolutionary pressure on losses and gains and therefore exists across decision-making contexts. On the other hand, distinct brain regions are involved with different decision costs, making it questionable whether similar asymmetries exist. Here, we demonstrate that young healthy participants exhibit loss aversion during effort-based decision-making by exerting more physical effort in order to avoid punishment than to gain a same-size reward. Next, we show that medicated Parkinson’s disease (PD) patients show a reduction in loss aversion compared to age-matched controls. Behavioural and computational analysis revealed that people with PD exerted similar physical effort in return for a reward, but were less willing to produce effort in order to avoid punishment. Therefore, loss aversion is present during effort-based decision-making and can be modulated by altered dopaminergic state. This finding could have important implications for our understanding of clinical disorders that show a reduced willingness to exert effort in the pursuit of reward.Significance StatementLoss aversion – preferring to avoid punishment than to acquire equivalent reward – is an important concept in decision-making under risk. However, little is known about whether loss aversion also exists during decisions where the cost is physical effort. This is surprising given that motor cost shapes human behaviour, and a reduced willingness to exert effort is a characteristic of many clinical disorders. Here, we show that healthy individuals exert more effort to minimise punishment than to maximise reward (loss aversion). We also demonstrate that loss aversion is modulated by altered dopaminergic state by showing that medicated Parkinson’s disease patients exert similar effort to gain reward but less effort to avoid punishment. Therefore, dopamine-dependent loss aversion is crucial for explaining effort-based decision-making.

Belt and road initiative (BRI) supply chain risks: propositions and model development

2020 ◽  
Vol 31 (4) ◽  
pp. 777-799
Author(s):  
Jiwat Ram ◽  
Zeyang Zhang
Keyword(s):  
Risk Factors ◽  
Decision Making ◽  
Risk Management ◽  
Cyber Security ◽  
Risk Sharing ◽  
Risk Model ◽  
Model Development ◽  
Belt And Road Initiative ◽  
Content Type ◽  
Belt And Road

PurposeBelt and road initiative (BRI) is a transcontinental endeavor strategically connecting supply chains (SCs) and economic infrastructures to ignite business activities and achieve trade benefits. However, the rising global SC failure costs and risks associated with this initiative (owing to unique geopolitical, economic and mega-connectivity involving over 70 countries) necessitate examining BRI SC risks. Yet, research on the subject remains limited, and the purpose of this paper is to address this gap in knowledge.Design/methodology/approachA two-pronged approach was taken. First, a data sample of 554 articles was analyzed and 178 articles found relevant were used to present a systematic, structured framework of risk factors along operational, economic, financial, social and security dimensions. Then informed by the theory of risk management and supplemented by literature evidence, we have built a BRI SC risk model.FindingsThe results presented through the model show that BRI SCs face a combination of risks triggered by operational processes, informational and environmental (PIE) deficiencies. Findings show that lack of risk and liability management, unbalanced risk-sharing partnerships, lack of transparency, inadequate project evaluation, incompatible corporate governance structures and cyber security all pose threats to BRI SCs specifically and SCs in general.Research limitations/implicationsAcademically, the results facilitate theory development by identifying and proposing seven risk factors and modeling relationship among them and BRI SC risks outcome. The results also extend application of theory of risk management to SC context.Practical implicationsThe findings provide a decision-making tool for managers to assess risk factors in their SCs, thus enabling improved decision making to avoid, mitigate, transfer or accept risks.Originality/valueIdentifies and proposes a set of seven risk factors that drive BRI SC risks. Develops a model of BRI SC risks which help build theory of SC risk management.

scholarly journals Evolutionary Game Analysis of Firms’ Technological Strategic Choices: A Perspective of the Behavioral Biases

Complexity ◽  
2021 ◽  
Vol 2021 ◽  
pp. 1-17
Author(s):  
Yingqing Zhang ◽  
Ruguo Fan ◽  
Ming Luo ◽  
Mingman Chen ◽  
Jiaqin Sun
Keyword(s):  
Decision Making ◽  
Intellectual Property ◽  
Loss Aversion ◽  
Evolutionary Game ◽  
Spillover Effect ◽  
Intellectual Property Protection ◽  
Game Model ◽  
Probability Weighting ◽  
Strategic Choices ◽  
Behavioral Biases

To reveal the mechanisms of firms’ technological strategic choices between innovation and imitation, an evolutionary game model is proposed from the perspective of the behavioral biases. First, behavioral biases such as reference point dependence, loss aversion, and probability weighting can be defined and modeled based on the prospect theory. Second, according to the firm theory, a Cournot or Stackelberg game modeled with a technology spillover effect and intellectual property protection is applied to portray the interaction between firms. Third, an improved evolutionary game model is provided by incorporating behavioral biases into the framework of the decision-making process. Finally, the simulation analysis of some important factors, such as intellectual property protection, patent fees, innovation risks, decision-making attitudes, and consumers’ price preference on firms’ technological strategic choices, is presented. The corresponding results show that (1) innovation risk is an important factor affecting the technological strategic choices of firms, (2) increasing the intellectual property protection and the patent fee for technology transfer can effectively control the spillover effect of technology, (3) there is a partial U-shaped relationship between the consumers’ price preference and innovation, and (4) the behavioral biases such as reference point dependence, loss aversion, and probability weighting will change the perception of payoff and risk and will eventually induce firms to adopt the innovation strategy.

A Decision Making Model of Laying Mode of Urban Rail Transit

2011 ◽  
Vol 94-96 ◽  
pp. 664-667
Author(s):  
Xing Ju Wang ◽  
Xiao Ming Xi ◽  
Gui Feng Gao ◽  
Jin Jie Chen
Keyword(s):  
Decision Making ◽  
Quantitative Analysis ◽  
Cost Model ◽  
Low Cost ◽  
Urban Rail Transit ◽  
Rail Transit ◽  
Urban Rail ◽  
The Cost ◽  
Decision Making Model ◽  
Generalized Cost

This study develops a blocked cost model of urban rail transit, which is applied to determine laying mode of urban rail transit. In addition, this model focuses on the laying mode choice of urban rail transit by using quantitative analysis, which is previously discussed by using qualitative analysis. The case of Line No. 1 of Shijiazhuang urban rail transit is given to demonstrate the blocked cost. The results show that the cost of urban rail transit on the ground is 0.372 billion RMB per km and the cost of urban rail transit underground is 1.79 billion RMB per km. The mode on the ground is the best solution due to its low cost. But by analyzing and evaluating generalized cost in which blocked cost has been considered, the mode of urban railway transit underground is the best choice due to 1.79 billion RMB per km compared to 1.91 billion RMB per km on the ground.

Evolutionary strategies of consumer federation and manufacturer under recall mechanism

2021 ◽  
pp. 1-13
Author(s):  
Chuanxu Wang ◽  
Changqun Song ◽  
Lang Xu
Keyword(s):  
Decision Making ◽  
Evolutionary Game ◽  
Pricing Strategy ◽  
Evolutionary Strategies ◽  
Game Model ◽  
Pricing Strategies ◽  
Product Price ◽  
Penalty Coefficient ◽  
High Penalty ◽  
The Cost

Based on an unqualified product recalling process in a supply chain, this paper establishes an evolutionary game model between consumer federation and manufacturer, as well as analyzes the effects of manufacturer’s pricing strategy and consumer federation’s supervision on the decision-making and dynamic tendency. Under this structure, the manufacturers’ pricing strategies on recalls mechanism have two scenarios: the high penalty and low penalty from consumer federation. Results shows that, when the consumer federation adopts high penalty measures, there will be an ESS for consumer federation that can both minimize the cost and protect consumers’ rights. Further, the probability of manufacturer adopting “recall” strategy is positively correlated with the change in the product price, and both the probability of consumer federation adopting “regulate” strategy and manufacturer adopting “recall” strategy are positively correlated with the penalty coefficient.

scholarly journals Contingent Convertible Bonds for Sovereign Debt Risk Management

2018 ◽  
Vol 9 (1) ◽  
Author(s):  
Andrea Consiglio ◽  
Stavros A. Zenios
Keyword(s):  
Risk Management ◽  
Sovereign Debt ◽  
Risk Sharing ◽  
Convertible Bonds ◽  
False Alarms ◽  
Supporting Evidence ◽  
Expected Cost ◽  
Tail Risk ◽  
Ex Post ◽  
Simple Simulation

Abstract We consider convertible bonds that contractually stipulate payment standstill, contingent on a market indicator of a sovereign’s credit worthiness breaching a distress threshold. This financial innovation limits ex ante the likelihood of debt crises and imposes ex post risk sharing between creditors and the debtor. Drawing from literature on contingent contracts, neglected risks, and bank CoCo, we extend prevailing arguments in favor of sovereign CoCo (S-CoCo). We discuss issues relating to their design: which market trigger, market discipline and sovereign incentives, and errors of false alarms or missed crises, and provide supporting evidence with eurozone data and a simple simulation on the use of S-CoCo. We develop a risk management model using these instruments to trade off the expected cost for sovereign financing over a long horizon, with tail risk. The model shows how contingent bonds can improve a country’s debt risk profile. Using Greece as a case study the model illustrates improvements in expected cost vs. tail risk for the country when using contingent debt.

scholarly journals Determinants of Risk Management Adoption in Organisations and Supply Chains

2015 ◽  
Vol 773-774 ◽  
pp. 804-808
Author(s):  
Norlaile Salleh Hudin ◽  
Abu Bakar Abdul Hamid ◽  
Ai Chin Thoo
Keyword(s):  
Decision Making ◽  
Risk Management ◽  
Risk Perception ◽  
Supply Chains ◽  
Conceptual Framework ◽  
Case Studies ◽  
Limited Evidence ◽  
Perception Of Risk ◽  
Two Factors ◽  
The Cost

The implementation of risk management (RM) increases the value of firms, reduces the cost of debts, increases profits and improves decision making. However, the debates on what determines RM adoption are still unresolved due to limited evidence of RM adoption in industrial settings. Therefore, this paper aims to propose a conceptual framework of the determinants that influence the adoption of RM. It has been found that two factors, the perception of risk management and risk perception, have often been neglected in prior research. Thus, this paper extends the existing literature by introducing these factors to the framework of RM adoption. It is suggested that future case studies can be conducted to examine the significance of these two factors.

scholarly journals Prospect Theory and Political Decision Making

2019 ◽  
Author(s):  
Ferdinand M. Vieider ◽  
Barbara Vis
Keyword(s):  
Decision Making ◽  
Prospect Theory ◽  
Loss Aversion ◽  
Reference Dependence ◽  
Reflection Effect ◽  
Decision Making Under Risk ◽  
Political Decision ◽  
Ex Post ◽  
Past Data ◽  
Political Decision Making

Prospect theory—a psychologically founded account of decision making under risk and uncertainty—revolutionized how economists and, later, political scientists thought about decision making under uncertainty. Conceptually, prospect theory is based on two central notions: reference dependence, which is the notion that the utility of outcomes is defined over changes in outcomes from a reference point instead of over absolute outcome levels; and likelihood dependence, which is the notion that people distort probabilities non-linearly when making a decision. Likelihood dependence gives rise to the possibility and certainty effects—changes in probabilities are given much more weight if they fall toward the probability endpoints than if they fall into intermediate probability ranges. Reference dependence gives rise to the reflection effect, predicting mirrored risk attitudes for gains and for losses; and to loss aversion, predicting that people display a disproportionate dislike for losses. Prospect theory has been extensively applied in the literature on political decision making. Two observations stand out. One, some aspects, such as the reflection effect, have received considerably more attention than others, such as loss aversion or likelihood dependence. Two, there is a twin challenge arising from the combination of this selective modelling and ex post rationalization. A step-wise procedure may help making modelling approaches more principled and systematic. This could furthermore help predicting future decision making behaviour—an aspect that has been neglected in favour of fitting past data.

Sign in / Sign up

Export Citation Format

Share Document