ME290M Expert Systems in Mechanical Engineering Spring 1999, T-Th 12:30-2:00 pm 1165 Etcheverry Hall, Course Control No. 56369 http://best.me.berkeley.edu/~aagogino/me290m/s99

Certainty Equivalent Hypothesis:

If we have an uncertain prospect of $X with probability of p and $Y with probability of 1-p then (if Y>X) there should be a prospect for certain $Z, where X<Z<Y, for which the decision maker is indifferent in terms of preference between the two lotteries:

Consistency Assumptions:

1. Orderability

   Lotteries A and B can be ordered such that one is true:

   A>B, A³B, A ~ B, A²B, A<B

2. Transitivity (see Raiffa, p. 75,76)

   If A ~ B and B ~ C then A ~ C.

   If A > B and B > C then A > C.

   If A > B and B ~ C then A > C.

3. Continuity

   If A >C >B, you should be indifferent for some p:

   

4. Monotonicity

   If A > B then lottery C > D if and only if p > p'.

   

5. Decomposability

    

   

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   Last updated: 30 April 99
   Send Comments to: Alice Agogino, aagogino@me.berkeley.edu
   Copyright © 1999 Alice Agogino; All Rights Reserved.