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Deciding with Judgment

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Document pages: 22 pages

Abstract: A decision maker starts from a judgmental decision and moves to the closestboundary of the confidence interval. This statistical decision rule isadmissible and does not perform worse than the judgmental decision with aprobability equal to the confidence level, which is interpreted as acoefficient of statistical risk aversion. The confidence level is related tothe decision maker s aversion to uncertainty and can be elicited withlaboratory experiments using urns a la Ellsberg. The decision rule is appliedto a problem of asset allocation for an investor whose judgmental decision isto keep all her wealth in cash.

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