Thinking in uncertain terms - The proper use of expected utility
3 important questions on Thinking in uncertain terms - The proper use of expected utility
What are the problems in using the expected utility maximization in HR?
- It is impossible to form large groups of issues in which all decisions can be appraised according to one and the same, one-dimensional criterion
- There are not always reliable probabilities available
What do the "symmetric error tendencies" and "asymmetric error tendencies mean in expected utility?
- symmetric: if over- and underestimates of the same size are equally likely. In that case, the uncertainty of the probability estimate has no impact on the expected utility
- Asymmetric: if over- and underestimates of the same size are not equally likely. An expected utility may then be misleading.
Which conditions must be satisfied for expected utility maximization to be justified?
- There should be no conflicts of interest or issues of justice that need to be taken into account
- One and the same type of action or decision is repeated sufficiently many times to make the law of large numbers applicable
- The probability estimates have balanced error tendencies
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