Abstract:
Purpose - In real life, we only know the consequences of each possible action with some uncertainty. A typical example is interval uncertainty, when we only know the lower and upper bounds on the expected gain. A usual way to compare such interval-valued alternatives is to use the optimism-pessimism criterion developed by Nobelist Leo Hurwicz. In this approach, a weighted combination of the worst-case and the bestcase gains is maximized. There exist several justifications for this criterion; however, some of the assumptions behind these justifications are not 100% convincing. The purpose of this paper is to find a more convincing explanation. Design/methodology/approach - The authors used utility approach to decision-making. Findings - The authors proposed new, hopefully more convincing, justifications for Hurwicz’s approach. Originality/value - This is a new, more intuitive explanation of Hurwicz’s approach to decision-making under interval uncertainty.
