Ioannou, P G (1989) Dynamic probabilistic decision processes. Journal of Construction Engineering and Management, 115(2), pp. 237-257. ISSN 0733-9364
Abstract
This paper presents a general model for the formulation and solution of the risk-sensitive dynamic decision problem that maximizes the certain equivalent of the discounted rewards of a time-varying Markov decision process. The problem is solved by applying the principle of optimality and stochastic dynamic programming to the immediate rewards and the certain equivalent associated with the remaining transitions of a time-varying Markov process over a finite or infinite time horizon, under the assumptions of constant risk aversion and discounting of future cash flows. The solution provides transient and stationary optimal decision policies that depend on the presence or absence of discounting. The construction equipment replacement problem serves as an example application of the model to illustrate the solution methodology and the sensitivity of the optimal policy to the discount factor and the degree of risk aversion.
| Item Type: | Article |
|---|---|
| Index terms: | discount factor, dynamic programming, presence, decision process, construction equipment, replacement, methodology, cash flow |
| Subjects: | environmental science, economic analysis, materials science, decision analysis, financial management, algorithms, research methods, construction equipment |
| Topics: | Digital Applications, Business Strategy, Cost Management, Engineering Principles, Research Practice, Risk Management, Sustainability, Plant and Equipment |
| Descriptive scope: | 3 PCT |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here