Abstract
Decision analysis can be thought of as a discipline whose objective is to help an individual who must choose one, or a few, alternatives from a set of possible actions. One of the most commonly practiced techniques used in decision analysis where future consequences of each action are not known with certainty is based upon the axiomatic theory proposed by von Neumann and Morgenstern (vNM) in 1947. The presentation of the original vNM axioms has been modified several times in order to render them more intuitively, and thus normatively, appealing (see, for example, the review by MacCrimmon and Larsson, 1979), but the essence remains the same. Any of these sets of the axioms implies that: (1) an interval-scaled utility function for outcomes, dependent only on the outcome levels, exists; and (2) actions with specified probability distributions can be ranked by the expectations of the associated vNM utilities. Thus, the theory is also known as expected utility theory, and one can speak of the expected utility decision analysis (EUDA).
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Allais, M.: 1953, ‘Le Comportement de l’Homme Rationnel devant le Risque: Critique des Postulats et Axiomes de l‘Ecole Americaine’, Econometrica 21, 503-46.
Allais, M.: 1979, ‘The Foundations of a Positive Theory of Choice Involving Risk and a Criticism of the Postulates and Axioms of the American School’, in M. Allais and O. Hagen, (eds.), Expected Utility Hypotheses and the Allais Paradox, D. Reidel, Dordrecht, Holland, 27–148.
Allais, M.: 1979, ‘The So-Called Allais Paradox and Rational Decisions Under Certainty’, in M. Allais and O. Hagen, (eds.), Expected Utility Hypotheses and the Allais Paradox, D. Reidel, Dordrecht, Holland, 437–682.
de Neufville, R. and R. Keeney: 1973, ‘Multiattribute Preference Analysis for Transportation Systems Evaluation’, Transportation Research 7: 2, 1–16.
Fishburn, P.C.: 1967, ‘Methods of Estimating Additive Utilities’, Management Sciences 13:7, 435-53.
Hagen, 0.: 1979, ‘Toward a Positive Theory of Preferences Under Risk’, in M. Allais and O. Hagen (eds.), Expected Utility Hypotheses and the Allais Paradox, D. Reidel, Dordrecht, Holland, 271–302.
Halter, A.N. and G.W. Dean: 1979, Decisions Under Uncertainty, Southwestern Publishing, Cincinnati, OH.
Huber, G.P., R. Daneshyar, and D.L. Ford: 1971, ‘An Empirical Comparison of Five Utility Models for Predicting Job Performances’, Organizational Behavior and Human Performance 6, 267–82.
Kahneman, D. and A. Tversky: 1979, ‘Prospect Theory: An Analysis of Decision Under Risk’, Econometrica 47:2, 263-91.
Karmarkar, U.S.: 1974, ‘The Effect of Probabilities on the Subjective Evaluation of Lotteries’, MIT Working Paper No. 698-74, Sloan School of Management, MIT, Cambridge, MA.
Keeney, R.L. and H. Raiffa: 1978, Decisions With Multiple Objectives: Preferences and Value Tradeoffs, John Wiley and Sons, New York.
Krzysztofowicz, R.: 1982, ‘Strength of Preference and Risk Attitude in Utility Measurement’, Organizational Behavior and Human Performance, forthcoming.
MacCrimmon, K.R. and S. Larsson: 1979, ‘Utility Theory: Axioms Versus “Paradoxes”, in M. Allais and O. Hagen (eds.), Expected Utility Hypotheses and the Allais Paradox, D. Reidel, Dordrecht, Holland, 333–410.
Machina, M.J.: 1981, ‘“Rational” Decision Making Versus “Rational” Decision Modelling?’, Journal of Mathematical Psychology 24: 2, 163–75.
McCord, M. and R. de Neufville: 1982, ‘Fundamental Deficiency of Expected Utility Decision Analysis’, paper presented at Multiobjective Conference, Manchester, England.
Roy, B. and J.C. Hugonnard: 1982, ‘Ranking of Suburban Line Extension Projects on the Paris Metro System by a Multi-criteria Method’, Transportation Research 16A:4, 301-312.
Sarin, R.K., J.S. Dyer, and K. Nair: 1980, ‘A Comparative Evaluation of Three Approaches for Preference Function Assessment’, paper presented at the Joint National Meeting, TIMS/OSRA, Washington, D.C., May 4–7.
von Neumann, J. and O. Morgenstern: 1947, Theory of Games and Economic Behavior, 2nd ed., Princeton University Press, Princeton, NJ.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 1983 Springer Science+Business Media Dordrecht
About this chapter
Cite this chapter
McCord, M., de Neufville, R. (1983). Empirical Demonstration that Expected Utility Decision Analysis is Not Operational. In: Stigum, B.P., Wenstøp, F. (eds) Foundations of Utility and Risk Theory with Applications. Theory and Decision Library, vol 37. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-1590-4_10
Download citation
DOI: https://doi.org/10.1007/978-94-017-1590-4_10
Publisher Name: Springer, Dordrecht
Print ISBN: 978-90-481-8364-7
Online ISBN: 978-94-017-1590-4
eBook Packages: Springer Book Archive