Deciding with Judgment
Methodology
2019-03-19 v1 Econometrics
Abstract
A decision maker starts from a judgmental decision and moves to the closest boundary of the confidence interval. This statistical decision rule is admissible and does not perform worse than the judgmental decision with a probability equal to the confidence level, which is interpreted as a coefficient of statistical risk aversion. The confidence level is related to the decision maker's aversion to uncertainty and can be elicited with laboratory experiments using urns a la Ellsberg. The decision rule is applied to a problem of asset allocation for an investor whose judgmental decision is to keep all her wealth in cash.
Keywords
Cite
@article{arxiv.1903.06980,
title = {Deciding with Judgment},
author = {Simone Manganelli},
journal= {arXiv preprint arXiv:1903.06980},
year = {2019}
}