Book review: Capital budgeting/project selection by mathematical programming: An annotated bibliography Roy B. Larson

The general problem of how much to spend on which alternative investment opportunity has plagued decision makers for many years. The real-world decision situation is usually confounded by the uncertainty of the information base, the indeterminateness of the organizational goals and constraint regions, and the analytical complexities of examining the pertinent trade-off combinations. The literature on the analytical structure of the capital budgeting/project selection problem has grown enormously since the early 1950's. This “structural” literature has concentrated primarily on two central aspects of the overall problem: 1) a “correct” analytical representation and 2) algorithmic solutions to various formulations. The former approaches have dealt with such problems as the “correct” discount factor (e.g., the Hirschleifer paradox) and a representative preference frontier (e.g., the Friedman-Savage models) for quantifying the decision-maker's risk aversions. The latter area of study is perhaps historically the older of the two and centers around mathematical programming techniques (e.g., the Lorie-Savage problem).