Minimax expected opportunity loss: A new criterion for risk-based decision making

Hsin Ting Su*, Yeou-Koung Tung

*Corresponding author for this work

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

A risk measure, expected opportunity loss (EOL), is introduced to quantify the potential loss of making an incorrect choice in risk-based decision making. Different from Savage's (1951) minimax regret principle, EOL can account for the unbounded continuous random outcomes of alternatives and decision makers acceptable risk. This article studies the effects of the forms of loss function, correlation among outcomes, and the acceptable risk on the ranking results by considering the loss function in the power form. The results show that the loss functions and the outcomes correlations can significantly influence the rankings of alternatives in risk-based decision making.

Original languageEnglish
Pages (from-to)247-273
Number of pages27
JournalEngineering Economist
Volume57
Issue number4
DOIs
StatePublished - 1 Dec 2012

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