EconPapers    
Economics at your fingertips  
 

A Characterization of the Optimal Certainty Equivalent of the Average Cost via the Arrow-Pratt Sensitivity Function

Rolando Cavazos-Cadena () and Daniel Hernández-Hernández ()
Additional contact information
Rolando Cavazos-Cadena: Departamento de Estadística y Cálculo, Universidad Autónoma Agraria Antonio Narro, Buenavista, Saltillo, COAH 25315, México
Daniel Hernández-Hernández: Centro de Investigación en Matemáticas, Guanajuato, GTO 36000, México

Mathematics of Operations Research, 2016, vol. 41, issue 1, 224-235

Abstract: This work is concerned with finite-state irreducible Markov decision chains satisfying continuity-compactness requirements. It is supposed that the system is driven by a decision maker with utility function U , which, aside mild conditions, is arbitrary, and the performance of a control policy is measured by the long-run average cost criterion induced by U . The main conclusions about this performance index are as follows: (i) the optimal U -average value function coincides with the optimal V -average index for a certain exponential utility V , and (ii) the average criteria associated with U and V have the same class of optimal stationary policies.

Keywords: Arrow-Pratt risk sensitivity; regular utility; continuity of exponential average costs; monotonicity of certainty equivalents with respect to the Arrow-Pratt function (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://dx.doi.org/10.1287/moor.2015.0723 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormoor:v:41:y:2016:i:1:p:224-235

Access Statistics for this article

More articles in Mathematics of Operations Research from INFORMS Contact information at EDIRC.
Series data maintained by Mirko Janc ().

 
Page updated 2017-09-29
Handle: RePEc:inm:ormoor:v:41:y:2016:i:1:p:224-235