• 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.

• Journal of Electrical Engineering and Technology
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• v.9 no.3
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• pp.803-811
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• 2014

The moment when Electrical Vehicle (EV) starts charging or discharging is one of the most important parameters in estimating the impact of EV load on the grid. In this paper, a decision-making problem of determining the start time of charging and discharging during allowed period is proposed and studied under the uncertainty of real-time price. Prospect theory is utilized in the decision-making problem of this paper for it describes a kind of decision making behaviors under uncertainty. The case study uses the parameters of Springo SGM7001EV and adopts the historical realtime locational marginal pricing (LMP) data of PJM market for scenario reduction. Prospect values are calculated for every possible start time in the allowed charging or discharging period. By comparing the calculated prospect values, the optimal decisions are obtained accordingly and the results are compared with those based on Expected Utility Theory. Results show that with different initial State-of-Charge ($SoC_0$) and different reference points, the optimal start time of charging can be the one between 12 a.m. to 3 a.m. and optimal discharging starts at 2 p.m. or 3p.m. Moreover, the decision results of Prospect Theory may differ from that of the Expected Utility Theory with the reference points changing.

• 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.

• Asia pacific journal of information systems
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• v.18 no.3
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• pp.1-20
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• 2008

Based on the multi-attribute utility theory (MAUT), we present a survey method to measure consumer preferences. The multi-attribute utility theory has been used to make decisions in OR/MS field; however, we show that the method can be effectively used to estimate the demand for new services by measuring individual level utility function. Because conjoint method has been widely used to measure consumer preferences for new products and services, we compare the pros and cons of two consumer preference survey methods. Further, we illustrate how swing weighing method can be effectively used to elicit customer preferences especially for new telecommunications services, Multi-attribute utility theory is a compositional approach for modeling customer preference, in which researchers calculate overall service utility by summing up the evaluation results for each attribute. On the contrary, conjoint method is a decompositional approach, which requires holistic evaluations for profiles. Partworth for each attribute is derived or estimated based on the evaluation, and finally consumer preferences for each profile are calculated. However, if the profiles are quite new and unfamiliar to the survey respondents, they will find it very difficult to accurately evaluate the profiles. We believe that the multi-attribute utility theory-based survey method is more appropriate than the conjoint method, because respondents only need to assess attribute level preferences and not holistic assessment. We chose swing weighting method among many weight assessment methods in multi-attribute utility theory, because it is designed to perform in a simple and fast manner. As illustrated in Clemen and Reilly (2001), to assess swing weights, the first step is to create the worst possible outcome as a benchmark by setting the worst level on each of the attributes. Then, each of the succeeding rows "swings" one of the attributes from worst to best. Upon constructing the swing table, respondents rank order the outcomes (rows). The next step is to rate the outcomes in which the rating for the benchmark is set to be 0 and the rating for the best outcome to be 100, and the ratings for other outcomes are determined in the ranges between 0 and 100. In calculating weight for each attribute, ratings are normalized by the total sum of all ratings. To demonstrate the applicability of the approach, we elicited and analyzed individual-level customer preference for new telecommunication services-WiBro and HSDPA. We began with a randomly selected 800 interviewees, and reduced them to 432 because other remaining ones were related to the people who did not show strong intention for subscription to new telecommunications services. For each combination of content and handset, number of responses which favored WiBro and HSDPA were counted, respectively. It was assumed that interviewee favors a specific service when expected utility is greater than that of competing service(s). Then, the market share of each service was calculated by normalizing the total number of responses which preferred each service. Holistic evaluation of new and unfamiliar service is a tough challenge for survey respondents. We have developed a simple and easy method to assess individual level preference by estimating weight of each attribute. Swing method was applied for this purpose. We believe that estimating individual level preference will be quite flexibly used to predict market performance of new services in many different business environments.

• The Journal of Fisheries Business Administration
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• v.39 no.2
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• pp.109-123
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• 2008

This study is aimed to establish an investment decision model for offshore aquaculture project of rock bream in Korea using a certainty equivalent method (CEM) based on the expected utility theory and to investigate its economic viability under risk and uncertainty. In the analysis with CEM, the effects of risk attitude and risk level on investment and risk premium were examined and the impacts of various risk and uncertainty factors on the investment decision were also assessed. In addition, the outcomes were compared to those evaluated by the traditional net present value (NPV) method. Results show that risk premium grew as the investors became more risk averse and uncertainty level (the variance of NPV) increased. Consequently, the certainty equivalent value was predicted to decrease from the value assessed by the traditional NPV method.

• Asian Journal of Innovation and Policy
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• v.10 no.2
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• pp.236-248
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• 2021

The objective of this study is to introduce the urban utility concept that combines urban growth and urban disasters in the aspect of a conceptual theory. While many studies focused on the dollar amount damaged from a disaster, it requires adding not just building damages or human body losses but also the quality of life satisfaction. An issue in measuring the quality of life satisfaction needs to introduce a proper mode quantifying it. This study introduces the urban utility change in measuring the negative impacts of a disaster on urban life, which has been rarely investigated. To identify urban utility, urban flooding that is a cross-sectoral agenda and important to both developed and developing countries was adopted to respond to its increased frequency and damages, encouraging governments to focus on flood control policies. By combining a literature review on urban utility and urban growth, this study defined the urban utility concept as a net benefit of a resident with earnings subtracting housing and commuting costs. The theoretical study also explained that urban utility and its components dynamically change as per urban growth and disasters that even reversely affect urban growth. Because the urban utility can be one of the useful indices to appreciate the relationship between a disaster and urban growth, it is highly expected to apply for similar disaster impacts on urban areas, including COVID-19 and various global warming issues.

• Journal of Digital Convergence
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• v.15 no.11
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• pp.107-112
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• 2017

This paper performed an experimental study to test the validity of the prospect theory proposed by Tversky and Kahneman as an alternative to the expected utility theory. 115 college students attended the hypothetical games to choose one of two lotteries, one is safe option while the other one is risky. The risky options were set up to have low, medium or high probability of payoffs or losses. The amount of payoffs and losses of the lotteries was either large or small. Maximum likelihood estimation of the hypothetical games have shown that in case of high probability of positive payoffs the respondents were risk averse and when the probability of positive payoffs were small the respondents were risk loving. when the possibility of loss is high they were risk loving, while the probability is of loss is low the respondents were found to be risk averse. When the probability of risky options were medium the results were significant statistically in case of only losses. The amount of positive payoff or losses does not affect the results. Overall the results of this experiments support the prospect theory more than those of Laury & Holts (2008).

• Journal of Families and Better Life
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• v.7 no.2
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• pp.213-223
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• 1989

Decision frameworks for product safty policy are developed in theory and practice. Product characteristic approach and expected utility analysis are applied to situations involving risk and misinformation. Eight types of regulatory frameworks are explained and critiqued form practical purposes on behalf of consumer policy makers. Various international organizations and their roles are briefly reviewed.

• 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].

• Journal of applied mathematics & informatics
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• v.24 no.1_2
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• pp.489-503
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• 2007

In this paper, we define signed interval-valued Choquet integrals which have numerous applications in mathematical economics, informatiom theory, expected utility theory, and risk analysis on interval-valued random variables, for examples: interval-valued random payments and interval-valued random profiles, etc. And we discuss axiomatic characterizations of them. Furthermore, we fine some condition that comonotonic additivity of symmetric Choquet integrals on interval-valued random payments is satisfied and give two examples related the main theorem.