Logical Decisions - Classweb

Preference
Set
Probabilistic
Level
Range
Risk
Aversion
Risk
Premium
A Preference Set is a set of SUFs and tradeoffs for the measures and
goals defined in the current analysis. A preference set includes a
name, a set of category multipliers if needed, a SUF for each measure,
and a set of weight assessment data that will allow a MUF for each
goal to be computed.
See also: Goal, Measure, MUF, SUF.
A probabilistic level is a probability distribution that describes the
level on a measure for an alternative when that level is not known
with certainty. This is in contrast to a point estimate, where a
measure's level is known with certainty and can be described with a
single number or text label.
See also: Label, Level, Measure, Point Estimate.
The range of a measure is determined by the most preferred and least
preferred levels of the measure as defined in the measure's dialog
box.
A measure is said to be Increasing if the most preferred level is greater
than the least preferred level. Otherwise it is said to be Decreasing.
The least preferred level always has a utility of 0.0 on the measure's
SUF, while the most preferred level has a utility of 1.0.
See also: Level, Measure, SUF, Utility.
The local risk aversion (r) is defined as the ratio r = -u''(x)/u'(x),
where u'(x) is the first derivative and u"(x) is the second derivative of
the utility function. In the case of the exponential utility functions
used in LDW this complicated function has a simple result. It is equal
-cx
to the constant c in the exponential formula u(x) = a +be . If r is
positive you are locally risk-averse (for measures where higher levels
are preferred). If r is negative, you are locally risk-seeking. Both of
these parameters are displayed when you do an assessment in LDW
with the SUF::Assess Utility option.
See also: Assess Utility option, SUF, Utility.
The risk premium indicates how much you would pay to avoid the
uncertainty in a lottery. It is the difference in the expected value of
the lottery B and the certain level L. If the risk premium is positive
and higher levels of the measure are preferred, then you would be
12-8 Section 12 -- Glossary