 A SIMPLE MODEL OF DECISION MAKING �HOW TO AVOID LARGE ERRORS?Zoltan Varsany Journal of Applied Economic Sciences, 2008, vol. 3, issue 3(5)_Fall2008, 320-328 Abstract: In this paper I present a simple model through which I examine how large unwanted outcomes in a process subject to one�s decisions can be avoided. The paper has implications for decision makers in the field of economics, financial markets and also everyday life. Probably the most interesting conclusion is that, in certain problems, in order to avoid large unwanted outcomes one, regularly and intentionally, has to make decisions that are not optimal according to his/her existing preference. The reason for it is that the decision rule might get �overfitted� to one�s (recent) experience and may give wrong signals if there is a change, even as temporary as in one single period, in the environment in which decisions are made. I find the optimal decision making strategy in an example case � the optimal strategy, however, may well be different in different realworld situations. Keywords: endogeneity; non-stacionarity; outliers; simulation; uncertainty (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ush:jaessh:v:3:y:2008:i:3(5)_fall2008:p:320-328 Access Statistics for this article Journal of Applied Economic Sciences is currently edited by Laura Stefanescu More articles in Journal of Applied Economic Sciences from Spiru Haret University, Faculty of Financial Management and Accounting Craiova Contact information at EDIRC. |
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