The utility of reliability and survival
The Annals of Applied Statistics · 2009 · Volume 3 · Issue 4
Abstract
Reliability (survival analysis, to biostatisticians) is a key ingredient for making decisions that mitigate the risk of failure. The other key ingredient is utility. A decision theoretic framework harnesses the two, but to invoke this framework we must distinguish between chance and probability. We describe a functional form for the utility of chance that incorporates all dispositions to risk, and propose a probability of choice model for eliciting this utility. To implement the model, a subject is asked to make a series of binary choices between gambles and certainty. These choices endow a statistical character to the problem of utility elicitation. The workings of our approach are illustrated via a live example involving a military planner. The material is general because it is germane to any situation involving the valuation of chance.
Keywords
Choice models, decision making, Probability, propensity, quality of life, risk analysis
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