In this paper I present a simple model through which I examine how large unwanted outcomes in a process subject to one’s decisions can be avoided. The paper has implications for decision makers in the field of economics, financial markets and also everyday life. Probably the most interesting conclusion is that, in certain problems, in order to avoid large unwanted outcomes one, regularly and intentionally, has to make decisions that are not optimal according to his/her existing preference. The reason for it is that the decision rule might get “overfitted” to one’s (recent) experience and may give wrong signals if there is a change, even as temporary as in one single period, in the environment in which decisions are made. I find the optimal decision making strategy in an example case – the optimal strategy, however, may well be different in different real-world situations.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
9528.
Find related papers by JEL classification: D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
This paper has been announced in the following NEP Reports:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: