DECISION-MAKING BY AN INDIVIDUAL BASED ON THEIR ATTITUDE TO RISK

Author(s): Bogocharov M.A.

Rubric: Management in social and economic systems

DOI: 10.21777/2500-2112-2021-2-57-64

Release: 2021-2 (35)

Pages: 57-64

Keywords: risk aversion, utility function, convex (concave) function, expected utility, benefit

Annotation: This article is devoted to the problem of decision-making by an individual, taking into account his attitude to risk. It is assumed that the behavior of the individual obeys certain laws. This assumption allows the use of quantitative decision-making methods based on the use of convex programming methods. When solving optimization problems, risk indicators have a decisive influence on the value of the objective function. The properties of the utility function are considered in the neoclassical approximation. The most important property of such functions is their concavity (convexity) over the entire domain of definition. The characteristics of concavity are formulated: through the second derivative, through the chord and through the tangent. The options for measuring risk aversion and the corresponding paths for finding the extremum of the expected utility function are considered. The initial premise of the analysis is the axiom that the individual's actions are always aimed at achieving the maximum of his individual utility function. The conclusion is made about the influence of risk aversion on the choice of an individual.

Bibliography: Bogocharov M.A. DECISION-MAKING BY AN INDIVIDUAL BASED ON THEIR ATTITUDE TO RISK // Education Resources and Technologies. – 2021. – № 2 (35). – С. 57-64. doi: 10.21777/2500-2112-2021-2-57-64