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Probabilistic Methods for Financial and Marketing Informatics by Xia Jiang, Richard E. Neapolitan

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Chapter 6

Further Techniques in Decision Analysis

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The previous chapter presented the fundamentals of decision analysis. Here, we present further techniques in the use of decision analysis. Most individuals would not make a monetary decision by simply maximizing expected values if the amounts of money involved were large compared to their total wealth. That is, most individuals are risk averse. So, in general, we need to model an individual’s attitude toward risk when using decision analysis to recommend a decision. Section 6.1 shows how to do this using a personal utility function. Rather than assess a utility function, a decision maker may ...

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