The risk assessment of construction project investment based on prospect theory with linguistic preference orderings

Multiple experts decision-making (MEDM) can be regarded as a situation where a group of experts are invited to provide their opinions by evaluating the given alternatives, and then select the optimal alternative(s). As a useful linguistic expression model, linguistic preference orderings (LPOs) were established in which the order of alternatives and the relationships between two adjacent alternatives are fused well. Considering that prospect theory has the superiority in depicting risk attitudes (risk seeking for losses and risk aversion for gains) during the uncertain decision-making process, this paper develops a consensus model based on prospect theory to deal with MEDM problems with LPOs. Firstly, each LPO provided by expert is transformed into the responding DHLPR with complete consistency. Then, the reference point of expert is determined and the prospect preference matrix is established. Moreover, we can obtain the overall prospect consensus degree for a MEDM problem by calculating the similarity degree between individual and collective prospect preference matrix. Furthermore, a consensus improvement method is developed to complete the consensus reaching process. Finally, we apply the proposed method to deal with a practical MEDM problem involving the construction project investment, and make some comparative analyses with existing methods.National Natural Science Foundation of China (NSFC) 71771155China Postdoctoral Science Foundation 2020M680151Sichuan Postdoctoral Science special FoundationSichuan University Postdoctoral Interdisciplinary Innovation Startup FoundationFundamental Research Funds for the Central Universities YJ202015European Union (EU) TIN2016-75850-RSichuan Province System Science and Enterprise Development Research Center Xq20B0

Managing Non-Homogeneous Information and Experts’ Psychological Behavior in Group Emergency Decision Making

After an emergency event (EE) happens, emergency decision making (EDM) is a common and effective way to deal with the emergency situation, which plays an important role in mitigating its level of harm. In the real world, it is a big challenge for an individual emergency manager (EM) to make a proper and comprehensive decision for coping with an EE. Consequently, many practical EDM problems drive group emergency decision making (GEDM) problems whose main limitations are related to the lack of flexibility in knowledge elicitation, disagreements in the group and the consideration of experts’ psychological behavior in the decision process. Hence, this paper proposes a novel GEDM approach that allows more flexibility for preference elicitation under uncertainty, provides a consensus process to avoid disagreements and considers experts’ psychological behavior by using the fuzzy TODIM method based on prospect theory. Eventually, a group decision support system (GDSS) is developed to support the whole GEDM process defined in the proposed method demonstrating its novelty, validity and feasibility.This work was partly supported by the Young Doctoral Dissertation Project of Social Science Planning Project of Fujian Province (Project No. FJ2016C202), National Natural Science Foundation of China (Project Nos. 71371053, 61773123), Spanish National Research Project (Project No. TIN2015-66524-P), and Spanish Ministry of Economy and Finance Postdoctoral Fellow (IJCI-2015-23715) and ERDF

Either, Or. Exploration of an Emerging Decision Theory.

A novel decision theory is emerging out of sparse findings in economics, mathematics and, most importantly, psychology and computational cognitive science. It rejects a fundamental assumption of the theory of rational decision-making, namely, that uncertain belief rests on independent assessment of utility and probability, and includes envisioning possibilities within its scope. Several researchers working with these premises, independently of one another, arrived at the conclusion that decision is made by highlighting the positive features of the alternative that will be chosen while opposing it to a loosing alternative, whose unpleasant aspects have been stressed. This article frames together contributions from different disciplines, often unknown to one another, with the hope of improving the coordination of research efforts. Furthermore, it discusses the status of the novel theory with respect to our current idea of rationality.Rationality; Shackle; Shafer; Search for Dominant Structure; Differentiation -- Consolidation; Constraint Satisfaction Networks; Construction of Narratives

A systematic review on multi-criteria group decision-making methods based on weights: analysis and classification scheme

Interest in group decision-making (GDM) has been increasing prominently over the last decade. Access to global databases, sophisticated sensors which can obtain multiple inputs or complex problems requiring opinions from several experts have driven interest in data aggregation. Consequently, the field has been widely studied from several viewpoints and multiple approaches have been proposed. Nevertheless, there is a lack of general framework. Moreover, this problem is exacerbated in the case of experts’ weighting methods, one of the most widely-used techniques to deal with multiple source aggregation. This lack of general classification scheme, or a guide to assist expert knowledge, leads to ambiguity or misreading for readers, who may be overwhelmed by the large amount of unclassified information currently available. To invert this situation, a general GDM framework is presented which divides and classifies all data aggregation techniques, focusing on and expanding the classification of experts’ weighting methods in terms of analysis type by carrying out an in-depth literature review. Results are not only classified but analysed and discussed regarding multiple characteristics, such as MCDMs in which they are applied, type of data used, ideal solutions considered or when they are applied. Furthermore, general requirements supplement this analysis such as initial influence, or component division considerations. As a result, this paper provides not only a general classification scheme and a detailed analysis of experts’ weighting methods but also a road map for researchers working on GDM topics or a guide for experts who use these methods. Furthermore, six significant contributions for future research pathways are provided in the conclusions.The first author acknowledges support from the Spanish Ministry of Universities [grant number FPU18/01471]. The second and third author wish to recognize their support from the Serra Hunter program. Finally, this work was supported by the Catalan agency AGAUR through its research group support program (2017SGR00227). This research is part of the R&D project IAQ4EDU, reference no. PID2020-117366RB-I00, funded by MCIN/AEI/10.13039/ 501100011033.Peer ReviewedPostprint (published version

Addressing marine and coastal governance conflicts at the interface of multiple sectors and jurisdictions

Marine and coastal activities are closely interrelated, and conflicts among different sectors can undermine management and conservation objectives. Governance systems for fisheries, power generation, irrigation, aquaculture, marine biodiversity conservation, and other coastal and maritime activities are typically organized to manage conflicts within sectors, rather than across them. Based on the discussions around eight case studies presented at a workshop held in Brest in June 2019, this paper explores institutional approaches to move beyond managing conflicts within a sector. We primarily focus on cases where the groups and sectors involved are heterogeneous in terms of: the jurisdiction they fall under; their objectives; and the way they value ecosystem services. The paper first presents a synthesis of frameworks for understanding and managing cross-sectoral governance conflicts, drawing from social and natural sciences. We highlight commonalities but also conceptual differences across disciplines to address these issues. We then propose a novel analytical framework which we used to evaluate the eight case studies. Based on the main lessons learned from case studies, we then discuss the feasibility and key determinants of stakeholder collaboration as well as compensation and incentive schemes. The discussion concludes with future research needs to support policy development and inform integrated institutional regimes that consider the diversity of stakeholder interests and the potential benefits of cross-sectoral coordination

Behavioural Economics: Classical and Modern

In this paper, the origins and development of behavioural economics, beginning with the pioneering works of Herbert Simon (1953) and Ward Edwards (1954), is traced, described and (critically) discussed, in some detail. Two kinds of behavioural economics – classical and modern – are attributed, respectively, to the two pioneers. The mathematical foundations of classical behavioural economics is identified, largely, to be in the theory of computation and computational complexity; the corresponding mathematical basis for modern behavioural economics is, on the other hand, claimed to be a notion of subjective probability (at least at its origins in the works of Ward Edwards). The economic theories of behavior, challenging various aspects of 'orthodox' theory, were decisively influenced by these two mathematical underpinnings of the two theoriesClassical Behavioural Economics, Modern Behavioural Economics, Subjective Probability, Model of Computation, Computational Complexity. Subjective Expected Utility

Risk taking in financial markets : a behavioral perspective

Since the innovative work of Kahneman and Tversky (1979), behavioral finance has become one of the most active areas in financial economics. As compared to traditional models in this area, behavioral models often have the degree of flexibility that permits reinterpretation to fit new facts. Unfortunately, this flexibility makes it hard either to disprove or to validate behavioral models. In the present thesis we try to overcome this problem, by proposing a general framework based on stylized facts of human behavior (invariants); and applying it to three financial contexts. Related to the individual risk taking decision, we focus: on the role of incentives; on how prior outcomes influence future decision; and on the portfolio choice problem. Different from traditional models where risk aversion is usually assumed, in our behavioral framework, the risk preference of the investor varies depending on how he frames his choices. Our main conclusion is that absolute evaluations based on final wealth are limited and the relativity of risk taking decisions, where the perception of gains and losses drives the process, is a requirement to understand individual’s decisions. As a reply to behavioral critics, we reach propositions that can be falsified and make several predictions. Summing up, under the same theoretical framework we make the following contributions: (1) Shed more light on how incentives affect risk taking behavior, proposing a model where the reference plays a central role in the previous relationship; (2) Empirically test our incentives model considering a comprehensive world sample of equity funds (cross-section data); (3) Evaluate which effect is stronger in multi-period risk taking decisions for individual investors: house-money or disposition effect, proposing a novel experiment treatment; (4) Compare survey to experimental results finding that they are not necessarily aligned. (5) Generalize the myopic loss aversion behavior performing an experiment in Brazil and Spain; (6) Propose a theoretical model of how behavioral individuals choose their portfolios in terms of risk taking behavior; (7) Include estimation error in the behavioral portfolio analysis; (8) Evaluate whether theoretical models of portfolio choice should adapt or moderate the individual behavior characteristics. In this case we used a sample of several country equity indices. Our propositions suggest that managers in passive managed funds tend to be rewarded without incentive fee and be risk averse. On the other hand, in active managed funds, whether incentives will reduce or increase the riskiness of the fund will depend on how hard it is to outperform the benchmark. If the fund is (un)likely to outperform the benchmark, incentives (increase) reduce the manager’s risk appetite. Furthermore, the evaluative horizon influences the trader’s risk preferences, in the sense that if traders performed poorly (well) in a period, they tend to choose riskier (conservative) investments in the following period given the same evaluative horizon. Empirical evidence, based on a comprehensive world sample of mutual funds is also presented in this chapter and gives support to the previous propositions. Related to the house-money and disposition effect, we employ a survey approach and find evidence of house money effect. However, in an experiment performed in a dynamic financial setting, we show that the house money effect disappears, and that disposition is the dominant effect. We report supportive results related to existence of myopic loss aversion across countries and some evidence of country effect. Finally, in terms of asset allocation, our results support the use of our behavioral model (BRATE) as an alternative for defining optimal asset allocation and posit that a portfolio optimization model may be adapted to the individual biases implied by prospect theory without efficiency loss. We also explain why investors keep on holding, or even buy, loosing investments. ______________________________________________________________________________________________________________________________________________________Desde el trabajo innovador de Kahneman y de Tversky (1979), las finanzas del comportamiento se han convertido en una de las áreas más activas en la economía financiera. Comparados con los modelos tradicionales en esta área, los modelos del comportamiento tienen a menudo el grado de flexibilidad que permite su reinterpretación, ajustándoles a nuevos hechos empíricos. Desafortunadamente, esta flexibilidad hace difícil refutar o validar modelos del comportamiento. En la actual tesis intentamos superar este problema, proponiendo un marco general basado en hechos estilizados del comportamiento humano (invariables); y aplicándolo a tres contextos financieros. Relacionado con la decisión individual de toma de riesgo, nos enfocamos: en el papel de los incentivos financieros; en cómo los resultados anteriores influencian la decisión futura; y en el problema de la gerencia de cartera. Diferente de los modelos tradicionales donde la aversión al riesgo se asume generalmente, en nuestro marco del comportamiento, la preferencia del riesgo del inversionista varía dependiendo de cómo él enmarca sus opciones. Nuestra conclusión principal es que las evaluaciones absolutas basadas en la riqueza final son limitadas y la relatividad de las decisiones de riesgo, donde la percepción de las ganancias y de las pérdidas conduce el proceso, son un requisito para entender las decisiones del individuo. Como contestación a los críticos del comportamiento, alcanzamos proposiciones que pueden ser contrastadas y hacemos varias predicciones. Resumiendo, bajo el mismo marco teórico hacemos las contribuciones siguientes: (1) Verificamos cómo los incentivos afectan el comportamiento de toma de riesgo, proponiendo un modelo donde la referencia desempeña un papel central en la relación anterior; (2) Empíricamente contrastamos nuestro modelo de incentivos en vista de una muestra mundial representativa de los fondos de acciones; (3) Evaluamos qué efecto es más fuerte en un estudio dinámico del comportamiento individual de toma de riesgo: house-money o disposition effect, proponiendo un nuevo tratamiento experimental; (4) Comparamos los resultados de una encuesta a los experimentales y verificamos que no están necesariamente alineados. (5) Generalizamos el comportamiento miope de la aversión de la pérdida (myopic loss aversion) con un experimento realizado en Brasil y España; (6) Proponemos un modelo teórico de cómo los individuos sesgados eligen sus carteras en términos de toma de riesgo; (7) Incluimos el error de la estimación en el análisis de la cartera; (8) Evaluamos si los modelos teóricos de la selección de carteras deben adaptarse a las características sesgadas de los individuos o moderar las características individuales del comportamiento. En este caso utilizamos una muestra de varios índices de acciones de diversos países. Nuestras proposiciones sugieren que los gerentes en fondos manejados pasivamente tiendan a ser recompensados sin el honorario variable y sean adversos al riesgo. Por otra parte, en fondos manejados activamente, si los incentivos reducirán o aumentarán la toma de riesgo del fondo dependerá de su posibilidad de superar la rentabilidad de su cartera de referencia. Si es probable que el fondo supere la cartera de referencia, los incentivos (aumentan) reducen el apetito del riesgo del gerente. Además, el horizonte evaluativo influencia las preferencias del riesgo del gerente, en el sentido que si han obtenido mal (buenos) resultados en un período, ellos tienden para elegir inversiones (conservadoras) más arriesgadas en el período siguiente dado el mismo horizonte evaluativo. La evidencia empírica presentada en la tesis considerando una base representativa de fondos de acciones soporta esas predicciones. Relacionado con el house money y disposition effect, empleamos una encuesta y verificamos la existencia de house money. Sin embargo, en un experimento demostramos que desaparece el efecto house money, y que disposition es el efecto dominante. Nuestros resultados también soportan la existencia de la aversión miope de la pérdida a través de países y una cierta evidencia del efecto del país. Finalmente, en términos de gerencia de carteras, nuestros resultados apoyan el uso de nuestro modelo del comportamiento (BRATE) como alternativa para definir la asignación óptima de los activos y postulamos que un modelo optimización de cartera se puede adaptar a los sesgos individuales implicados por la teoría (prospect theory) sin pérdida de la eficacia

Testing times for global financial governance

Ignazio Angeloni believes that the increase in financial interdependence in recent decades has not been matched by sufficient progress in the international coordination among regulatory authorities. In fact, the international financial system has suffered from insufficient globalisation of regulatory and supervisory policies, not excessive globalisation of financial markets.