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Sequential adaptive utility decision making for system failure correction

Author

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  • B Houlding
  • F. P. A. Coolen

Abstract

The theory of adaptive utility for sequential decision making offers a generalization of the classical Bayesian approach, permitting initial utility uncertainty. This paper examines how the possibility to learn preferences can be of interest for decisions in the area of reliability. The resulting differences in determining optimal strategies are explained and two examples are explored in which utility depends on the unknown cost of system failure. The paper concludes with a commentary on further research required.

Suggested Citation

  • B Houlding & F. P. A. Coolen, 2007. "Sequential adaptive utility decision making for system failure correction," Journal of Risk and Reliability, , vol. 221(4), pages 285-295, December.
    • Handle: RePEc:sae:risrel:v:221:y:2007:i:4:p:285-295
    DOI: 10.1243/1748006XJRR87
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    References listed on IDEAS

    as
    1. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    2. Tülin Erdem & Michael P. Keane, 1996. "Decision-Making Under Uncertainty: Capturing Dynamic Brand Choice Processes in Turbulent Consumer Goods Markets," Marketing Science, INFORMS, vol. 15(1), pages 1-20.
    3. Gregory S. Crawford & Matthew Shum, 2005. "Uncertainty and Learning in Pharmaceutical Demand," Econometrica, Econometric Society, vol. 73(4), pages 1137-1173, July.
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