da3 - Engineering Risk Benefit Analysis 1.155, 2.943,...

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DA 3. The Axioms of Rational Behavior 1 Engineering Risk Benefit Analysis 1.155, 2.943, 3.577, 6.938, 10.816, 13.621, 16.862, 22.82, ESD.72, ESD.721 DA 3. The Axioms of Rational Behavior George E. Apostolakis Massachusetts Institute of Technology Spring 2007
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DA 3. The Axioms of Rational Behavior 2 Lotteries A lottery is a probabilistic trial characterized by a set of mutually exclusive and exhaustive possible outcomes C 1 , C 2 , …, C m , with respective probabilities p 1 , p 2 , …, p m . L(C 1 , C 2 , …, C m ; p 1 , p 2 , …, p m ) Example: L($5, $0; 0.6, 0.4) 0.6 0.4 $5 $0 L:
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DA 3. The Axioms of Rational Behavior 3 Preferences exist For every pair of consequences C i and C j , a DM will: ¾ prefer C i to C j C i C j ¾ be indifferent between C i and C j C i ~ C j ¾ prefer C j to C i C i C j f p
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DA 3. The Axioms of Rational Behavior 4 Definition of C * and C * Define: ¾ C * a consequence that is at least as preferred as the most preferred of C 1 …C m C * C i for all i ¾ C * a consequence that is at least as low in preference as the least preferred of C 1 …C m C * C i for all i C * and C * need not be included in C 1 …C m f p
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5 The desirability of a lottery
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This note was uploaded on 11/08/2011 for the course AERO 16.851 taught by Professor Ldavidmiller during the Fall '03 term at MIT.

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da3 - Engineering Risk Benefit Analysis 1.155, 2.943,...

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