A Decision Making Model with Utility from Anticipation and Disappointment

Ying He, James Dyer, John Butler

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

Resumé

We propose a descriptive model to capture the trade‐off between anticipation and either elation or disappointment subject to an optimism/pessimism bias in decision making. In our model, there are two periods of the decision‐making process. In the first period, the decision maker (DM) anticipates receiving the future pay‐offs with subjective probabilities for the lottery outcomes that may deviate from the objective probabilities for these pay‐offs. In the second period, the DM evaluates the lottery outcomes on the basis of the objective probabilities but compares the received outcome with a level of anticipation formed in the first period. The DM will experience elation or disappointment when this outcome is above or below her or his level of anticipation, respectively. We provide an axiomatic framework for our model. Finally, we also show that the model allows risk attitudes that cannot be accommodated by existing models and has implications in portfolio selection and asset pricing problems in finance
OriginalsprogEngelsk
TidsskriftJournal of Multi-Criteria Decision Analysis
Vol/bind26
Udgave nummer1-2
Sider (fra-til)35-50
ISSN1057-9214
DOI
StatusUdgivet - 16. jan. 2019

Fingeraftryk

Decision-making model
Anticipation
Disappointment
Decision maker
Lottery
Axiomatics
Risk attitude
Decision making
Pessimism
Decision-making process
Subjective probability
Trade-offs
Portfolio selection
Asset pricing
Model risk
Optimism
Finance

Citer dette

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A Decision Making Model with Utility from Anticipation and Disappointment. / He, Ying; Dyer, James; Butler, John.

I: Journal of Multi-Criteria Decision Analysis, Bind 26, Nr. 1-2, 16.01.2019, s. 35-50.

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

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