Research on Bias of Owner's Decision-Making in Risk-Sharing in Construction Project - A Perspective of Bounded Rationality

Abstract:

Bounded rationality has an important impact on owners decision-making of risk-sharing in the project. Based on the hypothesis of bounded rationality, the paper established a risk-sharing game model concerning owners reference dependency and loss aversion, as well as conducted the quantitative analysis. The finding shows that comparing with the hypothesis of rationality, if taking the ex-post transaction cost as reference, when owner considers that the cost of risk management is smaller, the bounded rationality would make the owner prefer the proper risk-sharing; when owner considers that the cost of risk management is larger, the owner would prefer the improper risk-sharing; when the objective cost of risk management is larger than the ex-post transaction, the improper risk-sharing would be owners dominant strategy, and bounded rationality has no impact on owners decision-making of risk-sharing.

• Periodical: Applied Mechanics and Materials (Volumes 357-360)
• Pages: 2164-2170
• DOI: https://doi.org/10.4028/www.scientific.net/AMM.357-360.2164
• Online since: August 2013
• Authors: Yi Lin Yin, Zhi Chao Xu, Qing Song Zou
• Keywords: Bounded Rationality, Loss Aversion, Reference Dependency, Risk-Sharing in Construction Project

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