Decisions with Uncertain Consequences-A Total Ordering on Loss-Distributions

PLoS One. 2016 Dec 28;11(12):e0168583. doi: 10.1371/journal.pone.0168583. eCollection 2016.

Abstract

Decisions are often based on imprecise, uncertain or vague information. Likewise, the consequences of an action are often equally unpredictable, thus putting the decision maker into a twofold jeopardy. Assuming that the effects of an action can be modeled by a random variable, then the decision problem boils down to comparing different effects (random variables) by comparing their distribution functions. Although the full space of probability distributions cannot be ordered, a properly restricted subset of distributions can be totally ordered in a practically meaningful way. We call these loss-distributions, since they provide a substitute for the concept of loss-functions in decision theory. This article introduces the theory behind the necessary restrictions and the hereby constructible total ordering on random loss variables, which enables decisions under uncertainty of consequences. Using data obtained from simulations, we demonstrate the practical applicability of our approach.

MeSH terms

  • Computer Security*
  • Decision Making*
  • Decision Theory*
  • Humans
  • Judgment
  • Models, Theoretical*
  • Probability
  • Risk Assessment
  • Rivers / chemistry
  • Uncertainty*
  • Water / metabolism*

Substances

  • Water

Grants and funding

This work was supported by the European Commission’s Project No. 608090, HyRiM (Hybrid Risk Management for Utility Networks) under the 7th Framework Programme (FP7-SEC-2013-1). The project is online found at https://hyrim.net and http://cordis.europa.eu/project/rcn/185511_en.html.