Normative target-based decision making

Ali E. Abbas and James E. Matheson
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Ali E. Abbas: School of Engineering, University of Illinois at Urbana-Champaign, Urbana, IL 61801, USA, Postal: School of Engineering, University of Illinois at Urbana-Champaign, Urbana, IL 61801, USA
James E. Matheson: SmartOrg, Inc., 855 Oak Grove Avenue, Suite 202, Menlo Park, CA 94025, USA, Postal: SmartOrg, Inc., 855 Oak Grove Avenue, Suite 202, Menlo Park, CA 94025, USA

Managerial and Decision Economics, 2005, vol. 26, issue 6, pages 373-385

Abstract: This paper relates normative expected-utility decision making to target-based decision making, and introduces a new quantity, the aspiration equivalent. We show that using the aspiration equivalent as a target provides a new method for choosing between lotteries that is consistent with expected-utility maximization. Furthermore, we show that the aspiration-equivalent target provides a win-win situation for executive-manager delegation. This result furnishes a new link between normative decision analysis and target-based decision making. Copyright © 2005 John Wiley & Sons, Ltd.

Date: 2005
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