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Risk‐Constrained Information Choice
Author(s) -
Marshall Ronald M.,
Narasimhan Ram
Publication year - 1989
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1989.tb01412.x
Subject(s) - stochastic game , expected utility hypothesis , mathematical economics , computer science , mathematical optimization , risk dominance , complete information , boundary (topology) , risk seeking , mathematics , economics , game theory , repeated game , normal form game , finance , mathematical analysis
Ahituv and Wand [1] applied an information economics model to the problem of making information choices using two decision criteria: expected (monetary) payoff and expected risk. Using risk‐constrained optimization, they derived a solution in which the use of information is randomized by means of a mixed decision strategy. Although this solution is undominated when the expected payoff/expected risk trade‐off boundary is convex, it may be dominated when the boundary is not convex. To avoid such dominance, it is necessary to adjust their solution by randomizing the choice of information rather than its use. For any feasible level of expected risk, this will yield an expected payoff equal to or greater than their solution produces and will always result in an undominated expected payoff/expected risk combination.