Analysis of approaches to modelling of attitude to risk in normative decision making methods

Abstract

There are many methods to make decisions under risk. All of them can be divided into two large classes: normative (or prescriptive) methods and descriptive methods. Normative methods describe how individuals have to make optimal decisions based on certain decisive rules (selection criteria). Descriptive methods use empirical evidences concerning how individuals make optimal decisions in reality. There are a number of normative methods to make decisions under risk, which we mention in the presented paper as direct methods. Another popular tool to make decisions under risk is expected utility theory. The attitude to risk of the decision-making person plays the main role in decision making under risk. Therefore, attitudes to risk have to be effectively modelled and considered in decision making procedure. In this paper we are considering and analysing approaches to modelling of attitudes to risk with use of various normative methods of decision making under risk.