Abstract The article presents comments of the author on the article "Theory Versus Practice in Risk Analysis: An Empirical Study," by Willis R. Greer. In his Greer, claimed to show a conflict between utility theory and actual decisions made by representatives of twenty-seven Fortune 500 firms. Although the article provided an interesting analysis of firms' decisions, it seems misleading in two important respects. First, the hypothesis tested by Greer is quite different than the hypothesis that he suggested he was testing. Second in contrast to his claim of a substantial conflict between the decision processes used by actual decision makers and existing utility theory, the data give fairly good support to the counterclaim that the decision makers in his study tend to be expected utility maximizers. The latter point already has been discussed by scholar C.G. Hoskins and Greer and scholar Ted D. Skekel. More is said about this later in this comment. The interpretative problems with Greer's original article appear to arise from the author's conception of "existing utility theory." This conception is tied to a mean-standard deviation trade off model.

This report examines a class of mean-risk dominance models for investment and capital budgeting situations in which risk is associated with returns that fall below a specified target return. The model is offered as a partial reconciliation among viewpoints that have been associated with a large number of different models for choice in risky decision situations, including various parametric models, expected utility models, and stochastic dominance models. It is argued that the specific type of model examined has promising computational possibilities, and that it has a fair degree of compatibility with expected utility, stochastic dominance, and with the primary concerns expressed by decision makers in investment situations.

This paper explores implications for one-stage and two-stage decision processes of a theory of choice tha t accommodates nontransitive preferences. It focuses on probabilistic convexification of finite base sets and on choice from convex sets. The one-stage formulation always has a maximally-preferred element in the convex set. Two-stage processes allow not only a holistic procedure for the entire problem, but also give rise to naive and sophisticated sequential procedures. All three have unambiguous solutions, but they can be radically different under intransitivities. The thre e two-stage solutions coincide when preferences are transitive. Copyright 1988 by The Econometric Society.

Risk Taking, Probability distribution, Decision making

[Social choice lottery rules are analyzed for two-candidate elections with voters who may be uncertain about whom they prefer. A voter's uncertainty is reflected by a nonobservable choice probability of voting for candidate A rather than candidate B, given that he votes. Lottery rules are based on the votes for A and B; they are to be monotonic and symmetric in voters and in candidates. Given n voters, all lottery rules are convex combinations of about n/2 basic rules ranging from the coin-flip rule to simple majority. Candidate A's win probability and two measures of expected voter satisfaction are examined as functions of the individuals' choice probabilities and the lottery rules. Comparisons are made between simple majority and the proportional lottery rule which assigns social choice probability of j/n to A when A gets j of n votes. Each of simple majority and the proportional lottery rule satisfies attractive properties that are not satisfied by the other rule.]