2012/02/14 by Takayuki Osogami, Osogami, Takayuki
Computer Science · Decision Sciences · Economics, Econometrics and Finance · Social Sciences · #Artificial Intelligence (cs.AI) #Computer Science and Game Theory (cs.GT) #Decision-Making and Behavioral Economics #FOS: Computer and information sciences #FOS: Economics and business #Insurance, Mortality, Demography, Risk Management #Probability and Risk Models #Risk Management (q-fin.RM) #Risk and Portfolio Optimization #cs.AI #cs.GT #q-fin.RM
paper · pdf · doi:10.48550/arxiv.1202.3755
arxiv created 2012/02/14 · openalex publication_date 2012/02/14 · arxiv updated 2012/02/20 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We demonstrate a limitation of discounted expected utility, a standard approach for representing the preference to risk when future cost is discounted. Specifically, we provide an example of the preference of a decision maker that appears to be rational but cannot be represented with any discounted expected utility. A straightforward modification to discounted expected utility leads to inconsistent decision making over time. We will show that an iterated risk measure can represent the preference that cannot be represented by any discounted expected utility and that the decisions based on the iterated risk measure are consistent over time.