Research On Theory Of Individual Decision-making In The Face Of Uncertainty

The theory of individual investment decision-making in the face of uncertaintyhas its history. At first, the decision-making theory follows the principle of themathematical expectation maximization of utility. And it then develops to expectedutility theory by some economists. The theory keeps on developing and subjectiveexpected utility theory appears. General expected utility theory comes into being bypointing out the contradiction between expected utility theory and the reality. The lastphase of decision-making theory is non-expected utility theory and prospect theory，which introduces bounded rationality， is the typical theory of this period. In thisprocess, individual investment decision-making theory has been continuouslydeveloped and improved. However problems still exist and the most prominent one isthe contradiction between theory and reality. First, the evaluation of the project onlytakes the profit or loss into account while ignoring the non-economic indicators,which may have significant impacts on decision-making. Second, the theories handlerisks and uncertainties by defining the weight of the profit and loss, and it is notconsistent with the real decision-making. Third, all the theories ignore the importanceof reference project.This paper proposes relative expected utility function, which is an improvedutility function in the base of the existing theories, by using theoretical analysismethod, system method and comparative analysis method. The relative expectedutility function on one hand adopts the utility before the project implementation asother theories, and on the other hand it takes in some innovation, achieving theexplanation of some traditional theories and some real decision-making phenomenon.The innovation of the relative expected utility function is carried out mainly in twoways:First, it introduces the data of the reference project into the function, achievingre-definition of the decision-making mechanisms. The project is not viewed inisolation. Investors always conduct a comprehensive evaluation of projects in the baseof the data from the other projects. The comparison of the projects is implementedthrough pairwise comparison.Second, the relative expected utility function takes all the influencing factors,including the non-economic factors, the likelihood of the uncertainties and theirinfluence on the project, into account. And all the factors produce direct effect on the utility of the projects.Compared with the existed theories, the relative expected utility function has itsadvances as well as deficiencies. Anyhow, the proposal of relative expected utilityprovides a new research thought and research framework on decision-making, it doeshas significance on both theoretical and practical research.