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Effect of Risk Aversion on Single Sample Attribute Inspection Plans

Author

Listed:
  • Herbert Moskowitz

    (Krannert Graduate School, Purdue University, West Lafayette, Indiana 47907)

  • Robert Plante

    (Krannert Graduate School, Purdue University, West Lafayette, Indiana 47907)

Abstract

The impact of a decision maker's risk aversion on the choice of an optimal sampling plan is empirically examined for various batch sizes and prior distributions of the process quality level. These plans are compared to those of the classical linear cost model. The comparisons show that substantial differences in the characteristics of an optimal sampling plan (i.e., probability of acceptance, optimal sample size and expected total cost) occur when risk aversion is considered. A discussion of the optimization characteristics involved in the selection of a sampling plan is also presented. An optimization algorithm which obtains an optimal sampling plan based on the criterion of maximizing expected utility is proposed and evaluated.

Suggested Citation

  • Herbert Moskowitz & Robert Plante, 1984. "Effect of Risk Aversion on Single Sample Attribute Inspection Plans," Management Science, INFORMS, vol. 30(10), pages 1226-1237, October.
    • Handle: RePEc:inm:ormnsc:v:30:y:1984:i:10:p:1226-1237
    DOI: 10.1287/mnsc.30.10.1226
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    Cited by:

    1. Chun, Young Hak & Tang, Kwei, 1995. "Determining the optimal warranty price based on the producer's and customers' risk preferences," European Journal of Operational Research, Elsevier, vol. 85(1), pages 97-110, August.
    2. Starbird, S. Andrew, 1994. "The Effect Of Quality Assurance Policies For Processing Tomatoes On The Demand For Pesticides," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(1), pages 1-11, July.

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