Economic Objectives and Decision Problems

Abstract

This paper surveys some classical decision problems with and without uncertainty. From the survey, it is concluded that the natural generalization of these problems leads to the problem of describing preference orderings over sets of stochastic processes. It is shown that the decision maker can describe a preference ordering of this kind by stating that he is exposed to a risk, represented by a stochastic process, and that his objective is to find the decision which will minimize the probability of his ruin. If this probability is equal to one, the natural objective is to maximize the expected time before ruin occurs.