Analysis of Individual Risk Attitude for Risk Management Based on Cumulative Prospect Theory

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Author(s): Fei-Chen Hsu (National Tsing Hua University, Taiwan, ROC)and Hsiao-Fan Wang (National Tsing Hua University, Taiwan, ROC)
Copyright: 2009
Pages: 17
Source title: Intelligent Data Analysis: Developing New Methodologies Through Pattern Discovery and Recovery
Source Author(s)/Editor(s): Hsiao-Fan Wang (National Tsing Hua University, ROC)
DOI: 10.4018/978-1-59904-982-3.ch015

Keywords: Data Mining and Databases / Information Science Reference / Knowledge Discovery / Library & Information Science

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Abstract

In this chapter, we used Cumulative Prospect Theory to propose an individual risk management process (IRM) including a risk analysis stage and a risk response stage. According to an individual’s preferential structure, an individual’s risk level for the confronted risk can be identified from risk analysis. And based on a response evaluation model, the appropriate response strategy is assessed at the risk response stage. The applicability of the proposed model is evaluated by an A-C court case. The results have shown that the proposed method is able to provide more useful and pertinent information than the traditional method of decision tree by using the expected monetary value (EMV).

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Analysis of Individual Risk Attitude for Risk Management Based on Cumulative Prospect Theory

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