Decision analysis using targets instead of utility functions

Robert Bordley and Marco LiCalzi

Decisions in Economics and Finance, 2000, vol. 23, issue 1, 53-74

Abstract: A common precept of decision analysis under uncertainty is the choice of an action which maximizes the expected value of a utility function. Savage's (1954) axioms for subjective expected utility provide a normative foundation for this principle of choice. This paper shows that the same set of axioms implies that one should select an action which maximizes the probability of meeting an uncertain target. This suggests a new perspective and an alternate target-based language for decision analysis. We explore the implications and the advantages of this target-based approach for both individual and group decision-making.

Date: 2000-07-24
Note: Received: 12 December 1999
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