• Journal of the Korean Operations Research and Management Science Society
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• v.13 no.2
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• pp.66-71
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• 1988

Let B be present value of some sequence. This paper concerns the maximization of the expected utility of the present value B when the utility function is exponential.

• Korean Management Science Review
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• v.28 no.1
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• pp.159-167
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• 2011

The theory of random utility maximization (RUM) defines the probability of an alternative being chosen as the probability of its utility being perceived as higher than those of all the other competing alternatives in the choice set (Marschak 1960). According to this theory, consumers perceive the utility of an alternative not as a constant but as a probability distribution. Over the last two decades, there have been an increasing number of studies on the effect of utility variance on choice probability. The common result of the previous studies is that as the utility variance increases, the effect of the mean value of the utility (the deterministic component of the utility) on choice probability is reduced. This study provides a theoretical investigation on the effect of utility variance on choice probability without any assumptions on the specific forms of probability distributions. This study suggests that without assumptions of the probability distribution functions, firms cannot apply the marketing strategy of maximizing choice probability (or market share), but can only adopt the strategy of maximizing the minimum or maximum value of the expected choice probability. This study applies the Chebyshef inequality and shows how the changes in utility variances affect the maximum of minimum of choice probabilities and provides managerial implications.

• Communications for Statistical Applications and Methods
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• v.16 no.5
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• pp.813-820
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• 2009

In this paper, we review the utility-based generalization of the Shannon entropy and Kullback-Leibler information measure as the U-entropy and the U-relative entropy that was introduced by Friedman et al. (2007). Then, we derive some relations between the U-relative entropy and other information measures based on a parametric family of utility functions.

• Asia Marketing Journal
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• v.18 no.3
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• pp.47-63
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• 2016

Rational choice theory holds that the alternative with largest expected utility in the choice set should always be chosen. However, it is often observed that an alternative with the largest expected utility is not always chosen while the choice task itself being avoided. Such a choice phenomenon cannot be explained by the traditional expected utility maximization principle. The current study posits shows that such a phenomenon can be attributed to the gap between the expected perceived gain (or loss) and the expected perceived value. This study mathematically analyses the relationship between the expectation of an alternative's gains or losses over the reference point and its expected value, when the perceived gains or losses follow continuous probability distributions. The proposed expected value (EV) function can explain the effects of loss aversion and uncertainty on the evaluation of an alternative based on the prospect theory value function. The proposed function reveals why the expected gain of an alternative should exceed some positive threshold in order for the alternative to be chosen. The model also explains why none of the two equally or similarly attractive options is chosen when they are presented together, but either of them is chosen when presented alone. The EV function and EG-EV curve can extract and visualize the core tenets of the prospect theory more clearly than the value function itself.

• The Pure and Applied Mathematics
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• v.19 no.2
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• pp.179-192
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• 2012

We find the solution minimizing the shortfall risk by using the Lagrange-multiplier method. The conventional duality method in the expected utility maximization problem is used and we get the same results as in the paper [21].

• THE INTERNATIONAL COMMERCE & LAW REVIEW
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• v.35
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• pp.41-69
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• 2007

This study analyzes some important implications for the forthcoming revision of eUCP through the methodology of expected utility maximization theory. The overall results are as follows. First, beneficiary with an initial wealth has a risk-averse utility in traditional letter of credit transaction, and he would be more risk-averse in eUCP transaction. Secondly, the beneficiary who has risk-averse utility will pay for the risk premium to reduce the risk of corruption of an electronic record by means of cost of loss reduction activities. Thirdly, the cost of loss reduction activities is represented by a convex cost function, Fourthly, a risk averse beneficiary pursues loss reducing activities to the point where the expected marginal product of loss reduction is less than its marginal cost. Fifthly, a more risk-averse eUCP beneficiary will always select a higher level of loss reduction as long as the effectiveness of loss reduction is certain. Sixthly, when the effectiveness of loss reduction is uncertain, the more risk-averse eUCP beneficiary does not necessarily choose a higher level of loss reducing activities. Finally, it would be more reasonable that eUCP Article 11 should protect eUCP beneficiary who pursues a higher level of loss reducing activities.

• Asia Marketing Journal
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• v.22 no.1
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• pp.41-60
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• 2020

The goal of the study is to understand the role of social norm in purchase decisions where demand is revealed in the form of multiple-discreteness. Consumers are socially engaged in various activities through the expectation from others in their community. Actions or decisions are likely to reflect this influence. This implicit or explicit social norm is revealed as the rules, regulations, and standards that are understood, shared, endorsed, and expected by group members. When consumers' decisions are in distance from the norm, they come to face discomfort such as shame, guilt, embarrassment, and anxiety. These pressure act as a constraint as opposed to utility in their decision making. In this study, the effect of social norms on consumer demand is captured via multiple constraint model where constraints are not only from budget equation but also from psychological burden induced by the deviation from the norm. The posterior distributions of model parameters were estimated via conjoint study allowing for heterogeneity via hierarchical Bayesian framework. Individual characteristics such as age, gender and work experience are also used as covariates for capturing the observed heterogeneity. The empirical results show the role of social norm as constraint in consumers' utility maximization. The proposed model accounting for social constraint outperforms the standard budget constraint-only model in terms of model fit. It is found that people with longer job experience tend to be more robust and resistant to the deviation from the norm. Incorporating social norm into the utility model allows for another means to disentangle the reason for no-purchase as 'not preferred' and 'not able to buy'.

• The Journal of Asian Finance, Economics and Business
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• v.7 no.11
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• pp.13-22
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• 2020

This research explores the appropriate rubber pricing model and the consistent empirical evidence. This model has been derived from the utility function and firm profit-maximization model of commodity goods. The finding shows that the period t - 1 affects expected commodity price and expected profit of commodity production. In fact, a change in the world price of rubber in the past period led to a change in the expected price of rubber in the short run which influenced the expected rubber profit. As a result, the past-period free on board price has an entirety effect on expected farm price of rubber given an exchange rate. In addition, the rubber pricing model indicates that the profit of local farmer on rubber plant depends solely on the world price of rubber in the short run in case of Thailand. In an empirical study, it was found that a change in the price of ribbed smoke sheet 3 in Singapore Commodity Exchange significantly and positively determined the fluctuation of rubber price at the farm gate in Thailand which was consistent with the behavior of the Thai farmers. Both prices are also cointegrated in the long run. That is, the result states that the VECM is an appropriated pricing model for forecasting the farm price in Thailand.

• THE INTERNATIONAL COMMERCE & LAW REVIEW
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• v.57
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• pp.111-135
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• 2013

This study analyzes some important spin-off effects of the provision, UCP600 Article 14(6), through the methodology of the expected utility maximization theory based on the state-contingent commodities model. Some technical implications of this study are as follows. First, the risk-averse beneficiary will choose to present his documents more than 5 days before expiry date by paying a higher risk premium (so-called cure period) for full assurance to cure documentary discrepancies, if expressed economically, he pursues loss reducing activities to the point where the expected marginal product of his activities is less than its marginal cost. Secondly, where the effectiveness of securing cure period is uncertain, the risk-averse beneficiary will choose to present documents just on the expiry date without securing any cure period by paying no risk premium. This study finally suggests the safe harbor standard should be optimal solution only if it is supplemented by the hidden reasonableness standard for balancing the conflicts of interest between beneficiaries and banks.

• Journal of Korean Institute of Industrial Engineers
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• v.6 no.2
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• pp.21-29
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• 1980

This paper deals with the capital budgeting problem of a firm where investments are risky and interrelated. The established models might be classified into two categories; One is the chance-constrained programming model and the other is the expected utility maximization model. The former has a rather limited objective function and does not consider the risk in direct manner. The latter, on the other hand, might lead to a wrong decision because it uses an approximate value of expected utility. This paper attempts to extend the applicability of the chance-constrained programming model by modifying its objective function into a more general form. The capital budgeting problem is formulated as a nonlinear 0-1 integer programming problem first, and is formulated into a linear 0-1 integer programming problem for finding a lower-bound solution of the original problem. The optimal solution of the original problem is then obtained by branch & bound algorithm.