On Risk-Sensitive Decision Making Under Uncertainty

Chung-Han Hsieh and Yi-Shan Wong

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Abstract: This paper studies a risk-sensitive decision-making problem under uncertainty. It considers a decision-making process that unfolds over a fixed number of stages, in which a decision-maker chooses among multiple alternatives, some of which are deterministic and others are stochastic. The decision-maker's cumulative value is updated at each stage, reflecting the outcomes of the chosen alternatives. After formulating this as a stochastic control problem, we delineate the necessary optimality conditions for it. Two illustrative examples from optimal betting and inventory management are provided to support our theory.

Date: 2024-04
New Economics Papers: this item is included in nep-mic and nep-upt
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