The impact of uncertainty in a class of objective functions |
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Authors: | Gershon Feder |
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Institution: | Developartment Research Center The World Bank Washington, D.C. 20433 USA |
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Abstract: | This note analyzes some properties of a class of models involving optimization under uncertainty. Such models are characterized by a specific form of the objective function which is frequently encountered by economists. The discussion presented below generalizes a method which has been applied by several theoreticians 1–4, 8] to the analysis of specific topics in the theory of the firm and the problem of investment under uncertainty. This method makes use of a specific parameterization of risk and imposes some restrictions on decision makers' behavior, thus implying a model not as general as the one presented by Rothschild and Stiglitz 6, 7]. However, the present model is still plausible and affords some definite results where more general models are ambiguous. |
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