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Decision tree analysis for a risk averse decision maker: CVaR criterion. (English) Zbl 1317.91023
Summary: Risk aversion is a prevalent phenomenon when sufficiently large amounts are at risk. In this paper, we introduce a new prescriptive approach for coping with risk in sequential decision problems with discrete scenario space. We use Conditional Value-at-Risk (CVaR) risk measure as optimization criterion and prove that there is an explicit linear representation of the proposed model for the problem.

MSC:
91B06 Decision theory
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