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This issue of Decision Analysis begins with an article by Philippe Delquié, "Interpretation of the Risk Tolerance Coefficient in Terms of Maximum Acceptable Loss." The risk tolerance coefficient is an exponential utility function's parameter, which is positive for risk averse decision makers. Next is an article titled "Optimal Betting Strategies for Simultaneous Games," by Andrew Grant, David Johnstone, and Oh Kang Kwon, which examines how to bet on two or more games (such as sports events or political outcomes) at once. Our third paper, "Decision-Analytic Approach to Knockout Auctions," by Yigal Gerchak, examines an approach for bidding on a single jointly owned indivisible item (such as a cherished item in an estate with multiple heirs). Our fourth paper develops a method for evaluating bids. Carlos A. Bana e Costa, João C. Lourenço, Manuel P. Chagas, and João C. Bana e Costa use a multiple objective value function approach in their article "Development of Reusable Bid Evaluation Models for the Portuguese Electric Transmission Company." We end with an article by Jason R. W. Merrick which presents an approach for "Getting the Right Mix of Experts" when they give possibly correlated probability judgments.
Key words: bid evaluation; decision analysis; Dirichlet process mixtures; exponential utility; forecasting: combining; gambling; games-group decisions: bidding-auctions; Kelly betting; knockout auctions; maximum acceptable loss; multiattribute value theory; objectives: structuring of; parimutuel betting; probability: applications; risk aversion/tolerance; utility functions: assessments; utility functions: multiattribute; editorial
Following the French proverb that "He who turns aside avoids danger," or the American proverb that "It is better to be safe than sorry," decision makers may state a very low maximum acceptable loss when facing a risky decision. But, excess risk aversion may be detrimental, since, as hockey player Wayne Gretzky said, "You'll miss 100 percent of the shots you never take."
Philippe Delquié's paper, "Interpretation of the Risk Tolerance Coefficient in Terms of Maximum Acceptable Loss," points out that a discussion of the maximum acceptable loss may initiate examination of whether a person is too risk averse. Observing that users of exponential utility functions often seek a concrete meaning for the single parameter (labeled the "risk tolerance coefficient") in the exponential utility function, Delquié (2008) shows how this coefficient may be interpreted as the maximum loss the...