Discretization Precision and Assessment Error

Robert K. Hammond () and J. Eric Bickel ()
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Robert K. Hammond: Chevron North America Exploration and Production Company, Houston, Texas 77002
J. Eric Bickel: Operations Research and Industrial Engineering, The University of Texas, Austin, Texas 78712

Decision Analysis, 2017, vol. 14, issue 1, 21-34

Abstract: Continuous probability distributions are often discretized by assigning a weight to each of several percentiles (e.g., the 10th, 50th, and 90th percentiles). Previous work has analyzed the accuracy of various discretization methods. In practice, however, the assessed percentiles may not be precise. In this paper, we compare the performance of several discretization methods when the probability assessments are subject to error. Our results indicate that one should still strive to use the best discretization method even in the face of assessment error. This is particularly true if one is trying to preserve the variance and higher moments of the continuous distribution.

Keywords: probability discretization; probability assessment; subjective probability; decision analysis (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ordeca:v:14:y:2017:i:1:p:21-34

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