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The Effect of Exchange Rates on Statistical Decisions
Published online by Cambridge University Press: 01 January 2022
Abstract
Statistical decision theory, whether based on Bayesian principles or other concepts such as minimax or admissibility, relies on minimizing expected loss or maximizing expected utility. Loss and utility functions are generally treated as unit-less numerical measures of value for consequences. Here, we address the issue of the units in which loss and utility are settled and the implications that those units have on the rankings of potential decisions. When multiple currencies are available for paying the loss, one must take explicit account of which currency is used as well as the exchange rates between the various available currencies.
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- Copyright © The Philosophy of Science Association
Footnotes
The authors thank two anonymous referees for their helpful suggestions in preparing this article. The first author was supported, in part, by a grant from the Institute of New Economic Thinking.
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