On the relation between robust and Bayesian decision making

  • This paper compares Bayesian decision theory with robust decision theory where the decision maker optimizes with respect to the worst state realization. For a class of robust decision problems there exists a sequence of Bayesian decision problems whose solution converges towards the robust solution. It is shown that the limiting Bayesian problem displays infinite risk aversion and that decisions are insensitive (robust) to the precise assignment of prior probabilities. This holds independent from whether the preference for robustness is global or restricted to local perturbations around some reference model.

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Author:Klaus AdamORCiDGND
Parent Title (German):CFS working paper series ; 2003, 02
Series (Serial Number):CFS working paper series (2003, 02)
Document Type:Working Paper
Year of Completion:2003
Year of first Publication:2003
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:risk aversion; robust decision theory; uncertainty aversion
GND Keyword:Bayes-Entscheidungstheorie; Entscheidungstheorie
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht