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Title: |
Solving the Decision Paradoxes with a New Criterion |
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Source: |
International Conference on Engineering and Business Management 2012(Part 5 Innovative Technology)
(pp 3575-3579)
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Author(s): |
Xilong Jiang, School of Management, Harbin Institute of Technology, Harbin, China, 150001
Zhongfu Li, School of Management, Harbin Institute of Technology, Harbin, China, 150001;Faculty of Infrastructure Engineering, Dalian University of Technology, Dalian, China, 116024 |
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Abstract: |
Since the St. Petersburg Paradox was proposed by Daniel Bernoulli in 1738, the traditional Expected Monetary Value (EMV) standard has been subverted, and the Expected Utility Value (EUV) criterion has been established gradually which has dominated the field of risk and uncertain decision making for a long term. However, the EUV criterion is not perfect and disappointing somewhat, which can be reflected form its fragile explanations to the St. Petersburg Paradox, the super St. Petersburg Paradox, the Allais Paradox and the Ellsberg Paradox. Combined with historical and logic analysis, this paper suggests that in the process of risky and uncertain decision making, what people care about really is neither the monetary value, nor the utility value, but the state value. Under the base of state quantification and state-revenue-function interpolation, a new criterion named as the Expected State Value (ESV) criterion is put forward to solve the four famous paradox problems. The results show that the ESV principle proposed in this paper can digest the St. Petersburg Paradox, the super St. Petersburg Paradox, Allais Paradox and the Ellsberg Paradox successfully at the
same time. The new decision criterion may provide some help to explain why people make the decisions they
do when facing conditions of risk and uncertainty.
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