Abstract
Given the state of uncertainty in the world, decision analysis and decision-making under conditions of uncertainty are becoming more important. However, any rational decision-making requires a criterion on which to base the decision — which implies the availability of a value system. This paper will provide a short introduction to the basic principles of some value systems and related concepts such as the value of money, the flaw-of-averages, interest and discount rates, utility theory, and decision analysis. It will employ a Monte Carlo simulation approach to investigate the possible influence of the flaw-of-averages on interest calculations, net present value calculations, and decision trees. It will show that, under certain circumstances, the flaw-of-averages might be present and significant.
Highlights
13 Apr 2018 13 Jun 2018 31 Aug 2018This paper will provide a short introduction to the basic principles of some value systems and related concepts such as the value of money, the flaw-of-averages, interest and discount rates, utility theory, and decision analysis
AND BACKGROUNDNeither a borrower nor a lender be, For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry
If a man will begin with certainties, he shall end in doubts; but if he will be content to begin with doubts, he shall end in certainties
Summary
This paper will provide a short introduction to the basic principles of some value systems and related concepts such as the value of money, the flaw-of-averages, interest and discount rates, utility theory, and decision analysis. It will employ a Monte Carlo simulation approach to investigate the possible influence of the flaw-of-averages on interest calculations, net present value calculations, and decision trees. Dit sal gebruik maak van ’n Monte Carlo simulasie benadering om die moontlike invloed van die gemors-van-gemiddeldes op renteberekeninge, huidige waarde berekeninge, en besluitbome te ondersoek. Onder sekere omstandighede, die gemors-van-gemiddeldes betekenisvol teenwoordig mag wees
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