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

• Published in: Applied Mechanics and Materials Vol. 357-360; pp. 2164 - 2170
• Main Authors: Xu, Zhi Chao, Zou, Qing Song, Yin, Yi Lin
• Format: Journal Article
• Language: English
• Published: Zurich Trans Tech Publications Ltd 08.08.2013
• Subjects: Bounded Rationality; Loss Aversion; Risk-Sharing in Construction Project; Reference Dependency
• ISBN: 3037857765; 9783037857762
• ISSN: 1660-9336; 1662-7482; 1662-7482
• DOI: 10.4028/www.scientific.net/AMM.357-360.2164

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.