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On Risk-Sensitive Decision Making Under Uncertainty

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  • Chung-Han Hsieh
  • Yi-Shan Wong

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.

Suggested Citation

  • Chung-Han Hsieh & Yi-Shan Wong, 2024. "On Risk-Sensitive Decision Making Under Uncertainty," Papers 2404.13371, arXiv.org.
    • Handle: RePEc:arx:papers:2404.13371
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    File URL: http://arxiv.org/pdf/2404.13371
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    References listed on IDEAS

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    1. Luenberger, David G., 1993. "A preference foundation for log mean-variance criteria in portfolio choice problems," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 887-906.
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