DECISION ENGINEERING: TIME AS A PARAMETER IN THE ENTROPY DECISION RISK MODEL UTILITY (EDRM-U)

Thomas J. Monroe, Mario G. Beruvides

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

Abstract

Time is an important parameter in decisions made under uncertainty but is often not modeled in risk analyses. This research considers time effects upon decisions in the past, present, and future by incorporating the effects of prior outcomes, decision pressure in the present, and hope that a chosen outcome will remain valid (future utility, endowment, or reliability). According to Jeremy Bentham, utility theory is made up of four factors: magnitude, proximity, certainty, and time. So far, the Entropy Decision Risk Model Utility (EDRM-U) has addressed the first three factors by deriving the relationship between objective probability (relative certainty) and subjective probability (proximity), and demonstrating the validity of expected utility as the measure of magnitude in decision-making under uncertainty (behavioral economics, positive decision theory). EDRM-U also identified the measure of risk perception in terms of risk aversion and sensitivity. This follow-on research will introduce time as a parameter to both risk aversion and risk sensitivity elements of EDRM-U and then consider methods to validate and apply the new model. The goal of this research is to further the field of decision engineering by properly modeling all four dimensions of utility to accurately predict risk choices, permitting better choice design or decision maker calibration to achieve desired outcomes. This research will ultimately impact engineering management by advancing understating of how people make decisions involving uncertainty to more closely align risk analysis and management tools with decision-maker expectations.

Original languageEnglish
Title of host publication2021 ASEM Virtual International Annual Conference "Engineering Management and The New Normal"
PublisherAmerican Society for Engineering Management
Pages428-437
Number of pages10
ISBN (Electronic)9798985333404
StatePublished - 2021
Event42nd International Annual Conference of the American Society for Engineering Management: Engineering Management and The New Normal - Virtual, Online
Duration: Oct 27 2021Oct 30 2021

Publication series

Name2021 ASEM Virtual International Annual Conference "Engineering Management and The New Normal"

Conference

Conference42nd International Annual Conference of the American Society for Engineering Management: Engineering Management and The New Normal
CityVirtual, Online
Period10/27/2110/30/21

Keywords

  • Decision engineering
  • Endowment effect
  • Gain affection
  • Loss aversion
  • Objective probability
  • Risk aversion
  • Risk perception
  • Subjective probability

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