bluuebunny/crossref_metadata_2025 huggingface dataset:
A Measurement Error Approach for Modeling Consumer Risk Preference
Authors: Eliashberg Jehoshua , Hauser John R.
Published: November 2008

Von Neumann-Morgenstern (vN-M) utility theory is the dominant theoretical model of risk preference. Recently, market researchers have adapted vN-M theory to model consumer risk preference. But, most applications assess utility functions by asking just n questions to specify n parameters. However, any questioning format, especially under market research conditions, introduces measurement error. This paper explores the implications of measurement error on the estimation of the unknown parameters in vN-M utility functions and provides procedures to deal with measurement error.

We assume that the functional form of the utility function, but not its parameters, can be determined a priori through qualitative questioning. We then model measurement error as if question format and other influences cause the consumer to choose the unknown “risk parameter” from a probability distribution and to make his decisions accordingly. We provide procedures to estimate the unknown parameters when the measurement error is either (a) Normal or (b) Exponential.

Uncertainty in risk parameters induces uncertainty in utility and expected utility, and hence uncertainty in choice outcomes. Thus, we derive the induced probability distributions of the consumer's utility and the estimators for the implied probability that an alternative is chosen.

Results are obtained for both the standard decision analysis “preference indifference” question format and for a “revealed preference” format in which the consumer is asked simply to choose between two risky alternatives.

Since uniattribute functions illustrate the essential risk preference properties of vN-M functions, we emphasize uniattribute results. We also provide multiattribute estimation procedures. Numerical examples illustrate the analytical results.
Note—The Logic of Policy as Argument
Authors: Locks Mitchell O.
Published: November 2008

This paper is a review and evaluation of a policy argument in a recent issue of Management Science. Mitroff, Mason and Barabba presented a case study of a policy model, built around the problem of undercounting minorities in the U.S. Census, in a Toulmin format. We restructure this model as a Boolean system with both conditional and unconditional statements, preserving both the MMB arguments and the Toulmin format. It is shown that there is an error in the buildup of the MMB model. This error does not change the end result that their model is a contradiction, however it is much earlier to see this fact with the Boolean formulation than with a verbal presentation only. We discuss the potential usefulness of this type of modelling for policy capture, including some of the difficulties of employing the Toulmin format.
Note—Testing Regret
Authors: Anand Paul
Published: November 2008

Bell's recent paper (Bell, D. E. 1983. Risk premiums for decision regret. Management Sci. 29 1156–1166.) in this journal provides useful foundations for the regret approach to decision theory. This work is all the more important because regret, that is, the pain of having chosen incorrectly, is one of the few radical departures from the conceptual framework of the ubiquitous expected utility model and its variants. Despite providing many of the parametric accoutrements deemed necessary for the acceptance of a model he has not, I believe, proposed a test which is the most appropriate to establish the validity of regret.
A Cluster-Analytic Approach to Facility Layout
Authors: Scriabin Michael , Vergin Roger C.
Published: November 2008

Due to the combinatorial nature of the facility layout problem, current heuristic computer procedures do not always provide better solutions than visual methods. A new algorithm, FLAC (Facility Layout by Analysis of Clusters), is described which emulates the visual methods used by industrial engineers in solving facility layout problems. Initially side-stepping the combinatorial nature of the problem, FLAC is found to perform well in problems with high as well as low flow dominance, and in the presence and absence of line dominance. Computation time is attractive, especially on larger problems.
Malaysian Integrated Population Program Performance: Its Relation to Organizational and Integration Factors
Authors: Fong C. O.
Published: November 2008

The aim of this paper is two-fold. Firstly, it seeks to compare the efficacy of the Malaysian integrated population (i.e., integration of family planning with health) program with its categorial family planning counterpart. Secondly, it attempts to identify the organizational factors and the ‘integration’ factors (operationalized as staff integrative linkages) that result in better program performance for the two programs. On the basis of effectiveness of family planning diffusion, the results of the analysis indicate that the Malaysian integrated population program is more effective than its categorial counterpart. Further, integrative linkage variables were found to be an important group of variables that results in the improved effectiveness of the integrated program. This suggests that future expansion of the Malaysian population program (and population programs of other developing countries in a similar stage of development as Malaysia) should be through the approach of integrating family planning services with the health network, rather than through the expansion of the categorial family planning organization.
Antithetic Variates, Multivariate Dependence and Simulation of Stochastic Systems
Authors: Rubinstein Reuven Y. , Samorodnitsky Gennady , Shaked Moshe
Published: November 2008

Some theoretical and practical aspects antithetic and common random numbers for variance reduction in simulation of stochastic systems with dependent elements are considered. A proof of their optimality in estimating the expected value of the response sum or the response difference of a pair of functions of vector arguments with dependent components is presented. The efficiency of antithetic and common random numbers for variance reduction under different assumptions for the response functions is discussed. Applications to reliability, networks and queueing systems are given.
Probability Versus Certainty Equivalence Methods in Utility Measurement: Are they Equivalent?
Authors: Hershey John C. , Schoemaker Paul J. H.
Published: November 2008

Certainty equivalence (CE) and probability equivalence (PE) methods are the two most frequently used procedures for constructing von Neumann-Morgenstern utility functions. In this paper, we compare these methods experimentally, using a two-stage within-subject design. By asking subjects first for a CE judgment and later for a related PE judgment (or vice versa), a consistency test is devised which any deterministic expectation model, including those allowing probability transformations, should meet. Using four related experiments, this consistency test is applied separately to gain and loss questions, and to the two sequences of linked equivalence judgments, namely CE-PE and PE-CE. The empirical results reveal serious inconsistencies between the CE and PE responses for each of the four experiments. The extent of discrepancy depends strongly on the subject's initial risk attitude and whether the gain or loss domain is examined. To explain the complex pattern of results, the second part of the paper explores several plausible hypotheses.

The first of these concerns the role of random error, in either the responses or the utility function itself. It is shown that both can lead to bias, although not of a type that could explain our results. Thereafter shifts in reference points are examined. A particular reframing of the PE response mode is postulated in which a pure gamble is psychologically translated into a mixed one, leading to increased risk aversion. This hypothesis, which is also supported by other evidence, offers a complete and simple explanation of the results. Finally, several other behavioral hypotheses are examined, after developing a weighted average model to simulate them. They concern anchoring effects, differences in salience between the probability and outcome dimensions, strategic misrepresentation, regret or rejoice influences, and endowment effects. Although each hypothesis predicts some type of bias, none of these five could singly explain the particular pattern of bias observed.

In general, the study demonstrates (1) that serious discrepancies exist between the CE and PE methods of utility measurement, (2) that the particular results are incompatible with traditional deterministic choice models, (3) how random response errors, through propagation, can induce systematic biases in the utility function, (4) that reframing of the PE mode offers a simple reference shift explanation of the complex findings, and (5) how various heuristics and biases can be operationalized and simulated to assess their effects on utility measurement. As such, this study represents a further step toward a systematic investigation of response mode biases in utility measurement.
Options on Commodity Forward Contracts
Authors: Thorp Edward O.
Published: November 2008

We develop formulas for “European” options on commodity forward contracts. The assumptions and derivations are simple. The qualitative behavior of the formulas is developed for an intuitive overview. The put formula and related ideas were applied to successfully manage a quarter billion dollar hedge of GNMA futures versus standbys.
A Lagrangean Based Branch and Bound Algorithm for Single Machine Sequencing with Precedence Constraints to Minimize Total Weighted Completion Time
Authors: Potts C. N.
Published: November 2008

The single machine sequencing problem is considered in which there are precedence constraints on the jobs. The objective is to minimize the sum of weighted completion times. A lower bound is obtained by successively performing a Lagrangean relaxation of appropriate constraints. Each Lagrange multiplier is chosen to provide the maximum increment to the lower bound subject to retaining the nonnegativity of the coefficients of the variables. When no further suitable constraints can be introduced into the Lagrangean function, the variables having zero cost coefficient are used to obtain a feasible sequence which provides an upper bound. The gap between the lower and upper bound is reduced by removing some constraints from the Lagrangean function and replacing them with others. This lower bounding procedure is used in a branch and bound algorithm. Computational results indicate that the algorithm can satisfactorily solve problems with up to 100 jobs.
Approximating the Criticality Indices of the Activities in PERT Networks
Authors: Dodin Bajis M. , Elmaghraby Salah E.
Published: November 2008

A stochastic PERT network is a directed acyclic network in which the arc lengths are independent random variables with known distributions. A fundamental problem in PERT networks is to identify the activities which are critical to the achievement of the project objectives.

In an activity network if the duration of each activity is not a random variable, then it is easy to identify the criticality of each activity represented by its float time. However, when the duration of any activity is a random variable, it is not easy to identify the criticality of each activity. In this case the criticality of an activity is known as the “criticality index,” which is defined as the sum of the criticality indices of the paths containing it. The criticality index of a path is the probability that the duration of the path is greater than or equal to the duration of every other path in the network.

Clearly, the criticality index of an activity can be obtained by determining the criticality indices of the paths, which requires identifying all the paths, determining their criticality indices, then identifying the paths containing the activity. In this paper we develop a theory which leads to a procedure to approximate the criticality indices of all the activities without going through the above three steps. The procedure has been applied to large size PERT networks generated at random, and the results are found to be very close to those obtained by extensive Monte Carlo sampling.
Approximating the Equilibrium Behavior of Multi-Server Loss Systems
Authors: Jarvis J. P.
Published: November 2008

A procedure is given for approximating the equilibrium behavior of multi-server loss systems having distinguishable servers and multiple customer types under light to moderate traffic intensity. Calls are assumed to arrive according to independent Poisson processes for each customer type. General service time distributions which may depend on both server and customer type are allowed. For N servers, the approximation routine consists of a simple iterative procedure in N nonlinear equations. Computational experience with respect to the convergence properties of the iteration and the accuracy of the approximation is given.
Application of Sequential Testing to Motor Vehicle Emission Certification
Authors: Miller George , Farrell Robert L. , Pollock Stephen M.
Published: November 2008

A new structure for economically-based sequential inspection plans is developed for use in motor vehicle emission testing. The structure allows for multiple attributes, multiple sources of randomness, misclassification of inspected items, and adjustment of cost parameters to produce desirable classical properties. Specific sequential plans are developed for the Environmental Protection Agency's motor vehicle certification program and are applied retrospectively to vehicles tested in the past. The use of such plans in the past could have saved resources while resulting in no significant degradation in performance. Both the structure and computational methods used have potential application to other sampling inspection problems.
Successive Linear Programming at Exxon
Authors: Baker Thomas E. , Lasdon Leon S.
Published: November 2008

Successive Linear Programming (SLP) has been used extensively in the refining and petrochemical industries for over 20 years. This paper concentrates on some recent work at Exxon to unify the treatment of nonlinear terms in “mostly linear” models. We first discuss the source of nonlinearities in refining and petrochemical problems and propose a multiplicative formulation for the linearized subproblems to be solved by SLP. We then describe a SLP algorithm which is shown to be related to the concept of trust regions. Finally, we present an example formulation and computational results for a series of large industrial applications.
Analyzing Personnel Rotation in the Navy
Authors: Maurer Donald E.
Published: November 2008

The purpose of this paper is to analyze personnel rotation in the Navy. Although primarily a sea-going force, the Navy must periodically rotate personnel to shore duty. The effective administration of this policy promotes morale and reduces attrition. It also enables managers to control the distribution of personnel, so that programmed changes in force manning levels can be implemented gradually without disrupting individual career development. In order to accomplish this, however, Navy planners must understand the effect alterations in individual parameters will have on the system. A simplified mathematical model is developed and analyzed to help clarify these interrelationships. The results of this analysis are applied to answer some important questions concerning the present enlisted force.
Employing Financial Futures to Increase the Return on Near Cash (Treasury Bill) Investments
Authors: Elton Edwin J. , Gruber Martin J. , Rentzler Joel C.
Published: November 2008

The purpose of this article is to formulate and test a decision model to increase the return on a pool of liquid assets through the use of Treasury bill futures contracts. Recent literature has documented inefficiencies in the pricing of T-bill futures. These inefficiencies can be exploited to increase the return on a portfolio of T-bills without affecting the maturity of the portfolio. The solution technique used is dynamic programming. The results of applying a dynamic programming algorithm parameterized on available data to trade in real time are presented. The rules lead to increased returns.
Response to Rabow
Authors: Brams Steven J. , Merrill Samuel
Published: November 2008

Response to Rabow's note Rabow, G. Note—Response to “Equilibrium strategies for final-offer arbitration: there is no median convergence”. Management Sci. 31 (3, March) 374–375.
Note—A Note on Optimal and Near Optimal Price and Advertising Strategies
Authors: Rao Ram C.
Published: November 2008

In this paper “Optimal and Near Optimal Price and Advertising Strategies,” Welam (Welam, Ulf P. 1982. Optimal and near optimal prize and advertising strategies. Management Sci. 28 1313–1327.) considers a model which is similar to a model analyzed by Gould (Gould, John P. 1970. Diffusion processes and optimal advertising policy. E. S. Phelps et al., eds. Microeconomic Foundations of Employment and Inflation Theory. W. W. Norton, 338–368.) in his work on optimal advertising policies. The main difference between the two papers is that while Welam's analysis is in discrete time, Gould's is in continuous time. The equivalence of the two analyses is easy to establish and is contained in Rao (Rao, Ram C. 1983. A note on optimal advertising strategies. Working paper, University of Texas, Dallas, January.).
Beta Instability and Stochastic Market Weights
Authors: Goldenberg David H.
Published: November 2008

An argument is given for individual firm beta instability based upon the stochastic character of the market weights defining the market portfolio and the constancy of its beta. This argument is generalized to market weighted portfolios and the form of the stochastic process generating betas is linked to that of the market return process. The implications of this analysis for adequacy of models of beta nonstationarity and estimation of betas are considered in light of the available empirical evidence.
Optimal Ordering Policies Under Conditions of Extended Payment Privileges
Authors: Davis Robert A. , Gaither Norman
Published: November 2008

This paper develops optimal order quantities for firms that are offered a one-time opportunity to delay payment for an order of a commodity. Such delayed payments result in a reduction of the effective purchase cost, which is a function of the return available on alternative investments, the number of units of the commodity ordered, and the length of the extended period. Optimal order quantities are developed for extended payment privileges that occur at a reorder point of between reorder points. Six suppliers' extended payment scenarios are evaluated. A simulation analysis is conducted to determine the sensitivity of derived models to changes in the various input parameters. The simulation with realistic parameter values reveals that the additional discounted order quantity is insensitive to large changes in the ordering cost and unit price; sensitive to changes in the carrying cost and return rate of funds, but without significantly affecting the total cost; and extremely sensitive to the annual demand. Simple analytic decision rules are provided to guide firms that are offered such extended payment privileges.
Cognitive Heuristics and Feedback in a Dynamic Decision Environment
Authors: Kleinmuntz Don N.
Published: November 2008

Research on cognitive processes in decision making has identified heuristics that often work well but sometimes lead to serious errors. This paper presents an investigation of the performance of heuristics in a complex dynamic setting, characterized by repeated decisions with feedback. There are three components: (1) A simulated task resembling medical decision problems (diagnosis and treatment) is described. (2) Computer models of decision strategies are developed. These include models based on cognitive heuristics as well as benchmark strategies that indicate the limit of the heuristic strategies' performance. The upper benchmark is based on statistical decision theory, the lower one on random trial and error. (3) Selected task characteristics are systematically varied and their influence on performance evaluated in simulation experiments. Results indicate that task characteristics often studied in past research (e.g., symptom diagonosticity, disease base-rates) have less influence on performance relative to feedback-related aspects of the task. These dynamic characteristics are a major determinant of when heuristics perform well or badly. The results also provide insights about the costs and benefits of various cognitive heuristics. In addition, the possible contribution of this research to the design and evaluation of decision aids is considered.
The Effects of Problem Representation on the Sure-Thing and Substitution Principles
Authors: Keller L. Robin
Published: November 2008

This paper reports an experimental investigation of the effects of three forms of problem representation on compliance with the Sure-Thing and Substitution Principles. The most common form of representation, written problem statements, was compared with two visual representations: decision matrices with each column proportional in size to the probability of the corresponding event and tubes containing 100 labeled balls. The proportional matrices led to fewer violations of both principles. Moreover, when subjects were trained to construct proportional matrices from written problem statements, they exhibited even fewer violations.
Locating a Mobile Server Queueing Facility on a Tree Network
Authors: Chiu Samuel S. , Berman Oded , Larson Richard C.
Published: November 2008

This paper extends recent work on finding the stochastic queue median (SQM) on a network. The SQM is the optimal location of a single mobile server, when idle, who travels to customers in response to requests for service. Customer demands are limited to the nodes of the network and their requests for service arrive according to a time homogeneous Poisson process, independently from each node. When a service request finds the server busy with a previous customer, it is entered into an M/G/1 queue that is depleted in a first-in, first-out (FIFO) manner. The SQM is the point on the network at which the sum of mean queueing delay and mean travel time is minimized. In this paper the transportation network is restricted to be a tree. By discovering and exploiting convex properties of the objective function and related functions, an efficient finite-step algorithm is found for locating the SQM on a tree.
The Art and Science of Planning at the Business Unit Level
Authors: Miesing Paul , Wolfe Joseph
Published: November 2008

This paper attempts to relate the conditions that require different planning approaches. A theoretical planning framework is presented that considers the confidence of causal linkages coupled with the extent of environmental change. Prior planning research is synthesized to speculate on the appropriate leadership and decision-making styles for single-businesses, nondiversified firms, or divisions of diversified firms. Examples of computational, consensual, contingency, and conceptual planning systems are also provided.
A Note on Stochastic Shop Models in Which Jobs have the Same Processing Requirements on Each Machine
Authors: Pinedo Michael
Published: November 2008

We consider stochastic models for flow shops, job shops and open shops in which the work required by job j is the same at each machine, being a random variable Wj. Because machines operate at different speeds, Si, the processing time of job j at machine i is Wj/Si,. It is the main result of this note that in a flow shop where the machine speeds increase (decrease) from the first to last machine and the workload distributions are ordered by a likelihood ratio criterion, then the makespan of the jobs is stochastically minimized by processing the jobs in the order of least to greatest (greatest to least) workload.
An Algorithm for a Class of Nonconvex Programming Problems with Nonlinear Fractional Objectives
Authors: Jagannathan R.
Published: November 2008

In public policy decision making and in capital planning fractional criterion functions occur. For a given set of desirable target values (goals) τi, this paper develops an algorithm for solving a nonconvex programming problem of the type: Minx∈s Maxi{ϕi(fi(x)/gi(x) − τi), i = 1, …, m} where fi are convex functions, gi are concave functions over the convex subset S of Rn and ϕi are nondecreasing gauge functions. Here ϕi(·) is the penalty incurred whenever the fractional objective fi/gi deviates from the target value τi, the problem is then to choose an x that minimizes the maximum penalty incurred.
Analysis of Names and Relationships Among Data Elements
Authors: Sankar C. S.
Published: November 2008

When making decisions, managers like to obtain pertinent information quickly and accurately from the information systems in an organization. But, often, different answers are obtained, depending on how the information request is phrased or from which information system the information is requested. In order to correct this problem, the system analyst and data base administrator have to resolve any conflicts in defining elements, their names and their relationships before computerized information systems are designed. A syntax method, described in this paper, has been developed to handle this process. This method standardizes names and mathematical relationships of elements. These standard data elements become the input to most system analysis methods facilitating the design of computerized information systems.
Allocation of Servers for Stochastic Service Stations with One Overflow Station
Authors: Serfozo Richard
Published: November 2008

As one of its services, the Bell System provides microwave and cable transmission equipment for the transmission of news, sports and special-event TV programs from sites that do not have permanent transmission facilities. This paper describes a model for determining quantities of this TV equipment for service stations located throughout the country. This is actually a fundamental model for allocating servers (equipment in our case) for a stochastic service system consisting of several multiserver stations with one multiserver overflow station. The flows of customers to the initial stations are independent Poisson processes, and if a customer arrives at a station when all of its servers are busy, it is either served at the overflow station or denied service, depending on whether an overflow-server is available or not. The service times are exponential random variables. There are holding costs for having the servers in the system and costs for the services, depending on where they are done. We present a myopic nonlinear programming algorithm that finds numbers of servers for the stations that serve a desired percentage of customers at near-minimum cost. As part of our analysis, we show how Hayward's and Wilkinson's approximations for the blocking probability at the overflow station extend to heterogeneous service rates.
An Autoregressive Process for Beta Random Variables
Authors: McKenzie Ed
Published: November 2008

Two stationary first-order autoregressive processes with Beta marginal distributions are presented. They are both linear, additive processes but the coefficients are Beta random variables. Their autocorrelation functions are investigated: one is positive and the other alternates in sign. The usefulness of the models in simulation is discussed. The Bivariate Beta distributions of two consecutive observations are considered in some detail. Several examples are given, including a Bivariate Uniform process which is also examined in detail. The relationship of these Bivariate Beta distributions to the Dirichlet distribution is discussed.
New Polynomial Shortest Path Algorithms and Their Computational Attributes
Authors: Glover Fred , Klingman Darwin D. , Phillips Nancy V. , Schneider Robert F.
Published: November 2008

This paper presents six new variants of the polynomially bounded Partitioning Shortest Path (PSP) algorithm for finding the shortest path from one node to all other nodes in a network. Three of these variants, one for negative arc lengths, but without negative cycles, and two for nonnegative arc lengths, augment the PSP algorithm to maintain a property called sharp by Shier and Witzgall. The other three variants augment the PSP algorithm to maintain a property called near-sharp for nonnegative arc lengths. Extensive computational testing is presented on one of the sharp variants for nonnegative arc lengths and two of the near-sharp variants. The empirical results based on 4500 test problems with 90 different configurations and three different network topologies indicate that these new algorithms have excellent computational performance characteristics. Based on total solution times for the 4500 test problems, these new algorithms out-perform all other algorithms tested. In addition, one of the near-sharp algorithms strictly dominates all others on all problem topologies tested.
The Dynamics of Organizational Proximity
Authors: Monge Peter R. , Rothman Lynda White , Eisenberg Eric M. , Miller Katherine I. , Kirste Kenneth K.
Published: November 2008

The proximity among people in an organization is known to exert considerable influence on a variety of organizational outcomes such as performance, stress, and job satisfaction. Early research on proximity in organizations studied pairs of people in job locations that were at fixed distances (e.g., keypunch operators at their work stations). This research procedure ignores three critical features of organizational life. First, people are simultaneously proximate to everyone else in their organization. Second, this proximity changes throughout the day as people move about the organization. Finally, the opportunity and obligation for communication that people perceive by being physically close to others is often more important than the actual physical distance.

The present paper develops a definition of organizational proximity that accounts for these previous limitations. Specifically, organizational proximity is defined as two or more people being in the same location where there is both the opportunity and psychological obligation for face-to-face communication. This measure, when aggregated across all people in an organization, provides a single value of how concentrated people are in the various locations of the firm. Further, given the proper data collection techniques, it reveals the degree to which organizational proximity changes throughout the workday and workweek.

On the basis of this definition, research was conducted which examined the organizational proximity among employees in a research and development firm for each 15-minute interval of a typical workweek. Two major findings were obtained. First, the level of organizational proximity changed considerably during the course of a typical day, with peaks during the late morning and early afternoon and valleys during the early morning, lunch, and late afternoon hours. Second, the pattern was highly consistent from day-to-day. This consistency permitted the development of a model which enables accurate prediction of the level of organizational density for any time period during any day of the workweek.

There are several rather interesting managerial implications in these results. First, they support Peters and Waterman's (Peters, T. J., R. H. Waterman. 1982. Search of Excellence: Lessons from America's Best-Run Companies. Harper & Row, New York, 3–26, 119–155, 200–234.) recent recommendation of “management by wandering around,” since that technique maximizes a manager's proximity to employees. Second, the results suggest managerial and electronic alternatives to traditional forms of communication such as face-to-face meetings and phonecalls. Third, they imply alternative strategies for managing the daily fluctuations in availability of people and communication that result from differences and changes in organizational proximity.
Reply—On “Rankings from Round-Robin Tournaments” by Professor Michael Stob
Authors: Goddard Stephen
Published: November 2008

Reply to Stob, M. 1985. Note—Rankings from Round-Robin tournaments. Management Sci. 31 (9, September) 1191–1195.
A Comparative Application of Data Envelopment Analysis and Translog Methods: An Illustrative Study of Hospital Production
Authors: Banker Rajiv D. , Conrad Robert F. , Strauss Robert P.
Published: November 2008

This paper compares inferences about hospital cost and production correspondences from two different estimation models: (1) the econometric modeling of the translog cost function, and (2) the application of Data Envelopment Analysis (DEA). While there are numerous examples of the application of each approach to empirical data, this paper provides insights into the relative strengths of the estimation methods by applying both models to the same data.

The translog results suggest that constant reruns are operant, whereas the DEA results suggest that both increasing and decreasing returns to scale may be observed in different segments of the production correspondence, in turn suggesting that the translog model may be ‘averaging’ diametrically opposite behavior. On the other hand, by examining the rate of output transformation, both models agree that patient days devoted to care of children are more resource intensive than those devoted to adults or to the elderly. In addition, we compare estimates of technical efficiencies of individual hospitals obtained from the two methods. The DEA estimates are found to be highly related to the capacity utilization, but no such relationship was found for the translog estimates.

This comparative application of different estimation models to the same data to obtain inferences about the nature of underlying cost and production correspondences sheds interesting light on the strengths of each approach, and suggests the need for additional research comparing estimation models using real as well as simulated data.
Emergency Government Interventions: Case Study of Natural Gas Shortages
Authors: Charnes Abraham , Cooper William W. , Gorr Wilpen L. , Hsu Cheng , von Rabenau Burkhard
Published: November 2008

We present a framework, decision models, and supporting methods to improve government's decisions on a class of intervention problems. The example used is on natural gas shortages. We provide three decision models that move progressively from regulated market mechanisms as a means of gas allocation to nonprice-based directives as shortages become more serious. A critical aspect of this framework is government's timing in switching decision models and changing levels of decision variables. We provide new results on chance constraints that enable time series forecasting as the basis for triggering intervention decisions. In particular, we show that the forecasted regression quantile function for the underlying stochastic process of a chance constraint is the deterministic equivalent for the constraint. Lastly, we evaluate some government decisions on the 1976/77 natural gas shortage in Ohio by applying our methods in a simulation of the conditions of that time. One finding is that some of the emergency actions taken were probably unnecessary.
Binding Versus Final-Offer Arbitration: A Combination is Best
Authors: Brams Steven J. , Merrill Samuel
Published: November 2008

A new procedure is proposed for settling disputes which combines binding arbitration (BA) and final-offer arbitration (FOA). Unlike either of the two pure procedures, combined arbitration (CA) induces the two parties to converge in making their final offers.

Under BA, the arbitrator's settlement is binding on the two sides; under FOA, the arbitrator chooses the final offer of the party closer to what he/she considers a fair settlement. Under CA, FOA is used if the arbitrator's notion of a fair settlement falls between the two final offers or if the final offers converge or crisscross; otherwise, BA is used.

When modeled as a two-person, zero-sum game of imperfect information, in which the two parties make final offers to maximize their expected payoffs—based on their perception of the arbitrator's probability distribution of fair settlements—convergence is to the median and constitutes a global equilibrium if the probability distribution is continuous, unimodal, and symmetric about the median. When the distribution is not symmetric or the two parties have different distributions, alternative solutions are derived—including one based on the parties' being within a “critical distance” of each other—and illustrated by examples. Alternatives to the arbitrator's decision calculus are considered, and questions about applying the new arbitration procedure are discussed.
The Effects of the Sample Size, the Investment Horizon and Market Conditions on the Validity of Composite Performance Measures: A Generalization
Authors: Chen Son-Nan , Lee Cheng F.
Published: November 2008

In our previous study, the empirical relationship between Sharpe measure and its risk proxy was shown to be dependent on the sample size, the investment horizon and market conditions. This important result is generalized in the present study to include Treynor and Jensen performance measures. Moreover, it is shown that the conventional sample estimate of ex-ante Treynor measure is biased. As a result, the ranking of mutual fund performance based on the biased estimate is not an unbiased ranking as implied by the ex-ante Treynor measure. In addition, a significant relationship between the estimated Jensen measure and its risk proxy may produce a potential bias associated with the cumulative average residual technique which is frequently used for testing the market efficiency hypothesis. Finally, the impact of the dependence between risk and average return in Friend and Blume's findings is also investigated.
Final-Offer Arbitration
Authors: Wittman Donald
Published: November 2008

In final-offer arbitration the two parties to a dispute submit final offers to an arbitrator. The arbitrator then chooses as the binding solution that offer which is closest to his own view of the appropriate outcome. Because the disputants are imperfectly informed about the arbitrator's preferences, final-offer arbitration can be modeled as a game of imperfect information. Interesting questions arise concerning the nature of the optimal strategies and how they are affected by different characteristics of the arbitrator and the disputants.

We provide conditions for an equilibrium to exist in a final-offer arbitration game when there are k issues, the probability function is not specified and the disputants are either risk averse or risk neutral. Furthermore, the players may have differing beliefs about the arbitrator's probability function. We demonstrate that increased risk aversion by one of the parties will result in both players choosing positions farther away from the more risk averse party. We also discover the affect of bias (as well as the effect of increased sensitivity) by the arbitrator on the positions taken by the players.
A Special Case of Dynamic Pricing Policy
Authors: Wernerfelt Birger
Published: November 2008

This article studies the implications of experience curves and brand loyalty for optimal dynamic pricing policy. In a continuous time model, we synthesize several results from the literature on open loop equilibria. Specifically, we show that prices should decrease over time for high discount rates and steeper exogenous declines in variable costs. Conversely, the prices should increase over time if experience curves affect fixed costs and if consumers are brand loyal.
Note—The Managerial Economics of Civil Litigation: A Note
Authors: Nti Kofi O.
Published: November 2008

In his paper, “The Managerial Economics of Civil Litigation,” Levy (Levy, F. K. 1985. The managerial economics of civil litigation. Management Sci. 31 (March) 323–342.) develops a model to determine the optimal expenditures and maximal budgets for a plaintiff and a defendant in a civil suit. He uses a learning process to relate each litigant's probability of success to his level of expenditure. The specific learning process used is a difference equation where the rate of enhancement of probability is a constant fraction of the maximum possible gain. Levy's analysis would have been simpler if he had formulated that learning process as a differential equation.
When Does Lag Structure Really Matter in Optimizing Advertising Expenditures?
Authors: Magat Wesley A. , McCann John M. , Morey Richard C.
Published: November 2008

A paper by Bultez and Naert in the May 1979 issue of Management Science tentatively concludes that profits are relatively insensitive to misspecification of the lag structure of advertising. We examine the conditions under which a firm's profits are most likely to be sensitive to the misspecification of the lag structure. Our analysis indicates how this sensitivity is related to (a) the form of the true lag structure, (b) the demand function, (c) the cost function, and (d) the firm's discount rate.
A Market Entry Timing Model for New Technologies
Authors: Kalish Shlomo , Lilien Gary L.
Published: November 2008

A central issue in new product development and planning is the market timing/entry decision. An entry too early may risk pushing an under-developed product into the marketplace, with possible negative results; however, a product/technology may sacrifice sales if entry is delayed too long.

A market diffusion model is developed that incorporates negative word-of-mouth associated with new product failure, resulting from premature introduction. Our analysis suggests that, when introducing a new technology, significant penalties may be associated with mistiming introduction.

The analysis was applied to a problem facing the photovoltaic program of the Department of Energy. A proposal to construct a 100-home demonstration program for photovoltaics (PV) in the Southwest was being evaluated.

The analysis of this case showed that an argument can be made to delay the demonstration program for several years and that significant risks (in terms of lowered ultimate market penetration) exist when starting this PV demonstration program prematurely.
A Variable Buffer-Size Model and Its Use in Analyzing Closed Queueing Networks with Blocking
Authors: Suri Rajan , Diehl Gregory W.
Published: November 2008

We present a model which enables efficient analysis of certain types of closed queueing networks with blocking due to limited buffer spaces. The networks analyzed are those in which the limited buffers occur in tandem subnetworks. A new model, with variable buffer-size, is introduced as a conceptual tool to model part of a tandem network with blocking, using only product-form submodels. Using this model we iteratively solve for the whole network. The technique is illustrated first for a simple system with tandem queues, and then for more complex systems. The method is compared with exact solutions or simulations, and found to be reasonably accurate. The method is easily implemented using standard software for closed queueing networks. Given the complexity of the blocking problem, our approach offers a simple and efficient alternative to exact analysis.
Calibration and the Aggregation of Probabilities
Authors: Clemen Robert T.
Published: November 2008

In order to avoid the task of assessing a complicated likelihood function, Morris uses an axiomatic approach to develop a multiplicative rule for aggregating a decision maker's and an expert's probabilities. An essential shortcoming of the multiplicative rule is that it does not allow the decision maker to model his beliefs about the dependence between his assessment and the expert's. The root of the problem lies in the fact that the decision maker must calibrate the expert's information. When the calibration is done properly, the decision maker is forced to tackle the task which Morris proposes to avoid.
Delays for Customers from Different Arrival Streams to a Queue
Authors: Albin Susan L.
Published: November 2008

In a queue with several different arrival streams, in general, the expected delay for customers from one stream is not equal to the expected delay for customers from the other streams. Two approximations are presented here for the expected delay for customers from a particular arrival stream in an arrival process that is the superposition of independent renewal processes. Both approximations yield errors less than 10 percent, on average, when compared to simulation estimates. One approximation, extended from Holtzman (Holtzman, J. M. 1982. Mean delays of individual streams into a queue: the ΣGIi/M/1 queue. Applied Probability-Computer Science: The Interface, I, Proc. Conf. in Boca Raton, 417–430.), yields better results for very sparse arrival streams and the other, empirically derived, is easier to calculate. These approximations are useful in comparing the expected delays for customers from different arrival processes to a single queue and for customers with different routes through a network of queues.
Extending Planning Languages to Include Optimization Capabilities
Authors: Roy Asim , Lasdon L. S. , Lordeman J.
Published: November 2008

Planning languages and spreadsheet systems are very popular, and the number of new users is increasing dramatically. On larger computers, IFPS, System W, and FCS-EPS are among the most widely used systems; while on personal computers, Multiplan and 1-2-3 enjoy great popularity. Currently, such languages operate mainly as simulators, evaluating specific cases. In this paper, we propose methodology which is useful in designing an optimization capability for these languages. This capability permits the user to designate certain model variables as decisions, constraints, and the objective. Upper and lower limits on the decisions and constraints are also specified. The optimization interface then diagnoses the problem as linear or nonlinear, computes first partial derivatives needed by the solution algorithms, and invokes the appropriate “solver.” Information regarding the optimal solution is obtained using the reporting and graphics capabilities of the planning language. Sensitivity analysis and “what if” features permit easy modification of the problem for further analysis.

These ideas have been implemented in a system called IFPS/OPTIMUM, which provides an optimization capability to users of the widely-used planning language IFPS. A simple IFPS/OPTIMUM example is presented, and two applications are described.

Endowing planning languages with an optimization capability promises to increase dramatically the use of optimization. There are already hundreds of thousands of users of planning languages and spreadsheet systems, most of whom are unfamiliar with optimization models or methods. Making optimization a natural extension of systems they understand and find very useful holds great promise, both for applications and for teaching optimization concepts.
The Ability of Nash's Theory of Cooperative Games to Predict the Outcomes of Buyer-Seller Negotiations: A Dyad-Level Test
Authors: Neslin Scott A. , Greenhalgh Leonard
Published: November 2008

This research develops and implements a dyad-level procedure for testing whether the outcomes of buyer-seller negotiations correspond to settlements prescribed by Nash's theory of cooperative games. The procedure entails a multivariate statistical test in which some parameters are estimated by simulation, while others are provided directly from the assessment of negotiator utility functions by means of conjoint analysis. The procedure is applied to an experiment in which subjects participated in a realistic role-playing exercise that replicated the purchase of television advertising time. Results indicate that at the 0.01 significance level, 57.8% of the dyads can be rejected as not having achieved Nash solutions. These results, and their implications for marketing practitioners as well as future research, are discussed.