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A Problem in Making Resources Last

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  • J. MacQueen

    (University of California, Los Angeles)

Abstract

An individual uses up a certain resource at a constant rate, but from time to time has a chance to gamble some of the resource in order to gain more. The expectation of each gamble is zero, i.e., the gambles are fair. This means that eventually the resource will run out. However, the form of the risk can be varied arbitrarily. The question is what form of risk to choose, when the object is maximize the expectation of the utility, u(T), of having the resources run out at time T. This problem is solved for a more or less arbitrary function u(T). Various possible interpretations of such a function u(T) are discussed briefly. The model is mainly intended to provide a basis for empirical studies of individual decision making, where its complete mathematical tractibility is convenient.

Suggested Citation

  • J. MacQueen, 1964. "A Problem in Making Resources Last," Management Science, INFORMS, vol. 11(2), pages 341-347, November.
  • Handle: RePEc:inm:ormnsc:v:11:y:1964:i:2:p:341-347
    DOI: 10.1287/mnsc.11.2.341
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    Cited by:

    1. Sudhakar D. Deshmukh & Stanley R. Pliskaf, 1983. "A Martingale Characterization of the Price of a Nonrenewable Resource with Decisions Involving Uncertainty," Discussion Papers 565, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Sudhakar D. Deshmukh & Stanley R. Pliska, 1981. "Natural Energy Resource Decisions and Prices Involving Incertainty," Discussion Papers 499, Northwestern University, Center for Mathematical Studies in Economics and Management Science.

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