Journal
RISK ANALYSIS
Volume 32, Issue 8, Pages 1326-1332Publisher
WILEY-BLACKWELL
DOI: 10.1111/j.1539-6924.2012.01818.x
Keywords
Disaster recovery; equity premium puzzle; financial investment; info-gap; moral hazard; optimizing; robustness; satisficing; technological infrastructure; uncertainty
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Tools and concepts of optimization are widespread in decision-making, design, and planning. There is a moral imperative to do our best. Optimization underlies theories in physics and biology, and economic theories often presume that economic agents are optimizers. We argue that in decisions under uncertainty, what should be optimized is robustness rather than performance. We discuss the equity premium puzzle from financial economics, and explain that the puzzle can be resolved by using the strategy of satisficing rather than optimizing. We discuss design of critical technological infrastructure, showing that satisficing of performance requirementsrather than optimizing themis a preferable design concept. We explore the need for disaster recovery capability and its methodological dilemma. The disparate domainseconomics and engineeringilluminate different aspects of the challenge of uncertainty and of the significance of robust-satisficing.
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