{"id":122,"date":"2006-04-25T01:08:46","date_gmt":"2006-04-25T00:08:46","guid":{"rendered":"http:\/\/67.18.176.78\/dsn\/?p=122"},"modified":"2006-08-21T12:39:31","modified_gmt":"2006-08-21T11:39:31","slug":"risk-tolerance","status":"publish","type":"post","link":"https:\/\/www.decisionsciencenews.com\/?p=122","title":{"rendered":"Risk tolerance"},"content":{"rendered":"<p>ASSESSING RISK TOLERANCE WITH A SIMPLE GAMBLE<\/p>\n<div style=\"text-align: center\"><img loading=\"lazy\" decoding=\"async\" width=\"299\" height=\"300\" border=\"0\" alt=\"flip.gif\" src=\"http:\/\/67.18.176.78\/dg\/dsn\/archives\/flip.gif\" \/><\/div>\n<p>Want to estimate risk tolerance with just one question? Thanks to <a href=\"http:\/\/faculty.fuqua.duke.edu\/%7Eclemen\/bio\/index.html\">Bob Clemen<\/a> who has written a <a href=\"http:\/\/faculty.fuqua.duke.edu\/daweb\/danlv23n1.pdf\">nice piece<\/a> about it in the Decision Analysis Newsletter, and to the SJDM mailing list, here&#8217;s the one question:<\/p>\n<p>&#8220;Suppose you face a gamble where you can win $x with probability 0.5 or lose $x\/2 with probability 0.5. What is the largest x for which you would be just willing to take this gamble? I\u00e2\u0080\u0099m looking for the largest x that makes you just indifferent between taking the gamble or not.&#8221;<\/p>\n<p>In Clemen&#8217;s book <a href=\"http:\/\/www.amazon.com\/exec\/obidos\/ASIN\/0534260349\/decisionscien-20\/102-6062084-3650565?%5Fencoding=UTF8&#038;camp=1789&#038;link%5Fcode=xm2\">Making Hard Decisions<\/a>, in the solutions manual, he gives a derivation of how to get from the respose to that question into an estimate of the risk tolerance parameter R in the exponential utility function U(x) = 1-exp(-x\/R).<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" width=\"573\" height=\"322\" border=\"0\" alt=\"clemen.jpg\" src=\"http:\/\/67.18.176.78\/dg\/dsn\/archives\/clemen.jpg\" \/><\/p>\n<p>Another way to estimate risk tolerance is using the <a href=\"http:\/\/67.18.176.78\/dg\/dsn\/archives\/2006\/01\/what_will_the_r_1.html\">Distribution Builder<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>ASSESSING RISK TOLERANCE WITH A SIMPLE GAMBLE Want to estimate risk tolerance with just one question? Thanks to Bob Clemen who has written a nice piece about it in the Decision Analysis Newsletter, and to the SJDM mailing list, here&#8217;s the one question: &#8220;Suppose you face a gamble where you can win $x with probability [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false}}},"categories":[1],"tags":[],"class_list":["post-122","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p4LKj-1Y","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.decisionsciencenews.com\/index.php?rest_route=\/wp\/v2\/posts\/122","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.decisionsciencenews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.decisionsciencenews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.decisionsciencenews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.decisionsciencenews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=122"}],"version-history":[{"count":0,"href":"https:\/\/www.decisionsciencenews.com\/index.php?rest_route=\/wp\/v2\/posts\/122\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.decisionsciencenews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=122"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.decisionsciencenews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=122"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.decisionsciencenews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=122"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}