This paper aims to address the question of how one ought to choose when one is uncertain about what outcomes will result from one’s choices, but when one can nevertheless assign probabilities to the different possible outcomes. These choices are commonly referred to as choices (or decisions) under risk. I assume in this paper that one ought to make instrumentally rational choices—more precisely, one ought to adopt suitable means to one’s morally permissible ends. Expected utility (EU) theory is generally accepted (...) as a normative theory of rational choice under risk, or, more specifically, as a theory of instrumental rationality. According to EU theory, when faced with a decision under risk, one ought to rank one’s options (from least to most choiceworthy) according to their EU and one ought to choose whichever option carries the greatest EU (or one of them in the event that several alternatives are tied). The EU of an option is a probability-weighted sum of each of its possible utilities. In this paper, I argue that EU theory is not the correct theory of instrumental rationality. In its place, I argue for a new theory of instrumental rationality, namely expected comparative utility (ECU) theory. I first show that for any choice option, a, and for any state of the world, G, the measure of the choiceworthiness of a in G is the comparative utility of a in G—that is, the difference in utility, in G, between a and whichever alternative to a carries the greatest utility in G. On the basis of this principle, I then argue, roughly speaking, that for any agent, S, faced with any decision under risk, S ought to rank her options (in terms of how choiceworthy they are) according to their ECU and S ought to choose whichever option carries the greatest ECU (or one of them in the event that several alternatives are tied). For any option, a, a’s ECU is a probability‐weighted sum of a’s comparative utilities across the various possible states of the world. In this paper, I show that in some commonplace decisions under risk, ECU theory delivers different verdicts from those of EU theory. (shrink)

The relations between rationality and optimization have been widely discussed in the wake of Herbert Simon's work, with the common conclusion that the rationality concept does not imply the optimization principle. The paper is partly concerned with adding evidence for this view, but its main, more challenging objective is to question the converse implication from optimization to rationality, which is accepted even by bounded rationality theorists. We discuss three topics in succession: (1) rationally defensible cyclical choices, (2) the revealed preference (...) theory of optimization, and (3) the infinite regress of optimization. We conclude that (1) and (2) provide evidence only for the weak thesis that rationality does not imply optimization. But (3) is seen to deliver a significant argument for the strong thesis that optimization does not imply rationality. (shrink)

Cette note épistémologique porte sur le statut, en théorie de la décision, des concepts d’attitude par rapport au risque. A première vue, l’analyse axiomatique ne les exploite pas, ce qui reflète une certaine neutralité des modèles de décision au sujet de l’attitude par rapport au risque. Mais un examen plus poussé met en valeur la variation conditionnelle et le renforcement de l’attitude par rapport au risque, qui rattachent les concepts d’attitude par rapport au risque à l’analyse axiomatique.

A necessary and sufficient condition for linear aggregation of SSB utility functionals is presented. Harsanyi's social aggregation theorem for von Neumann–Morgenstern utility functions is shown to be a corollary to this result. Two generalizations of Fishburn and Gehrlein's conditional linear aggregation theorem for SSB utility functionals are also established.

In this paper, I examine the decision-theoretic status of risk attitudes. I start by providing evidence showing that the risk attitude concepts do not play a major role in the axiomatic analysis of the classic models of decision-making under risk. This can be interpreted as reflecting the neutrality of these models between the possible risk attitudes. My central claim, however, is that such neutrality needs to be qualified and the axiomatic relevance of risk attitudes needs to be re-evaluated accordingly. Specifically, (...) I highlight the importance of the conditional variation and the strengthening of risk attitudes, and I explain why they establish the axiomatic significance of the risk attitude concepts. I also present several questions for future research regarding the strengthening of risk attitudes. (shrink)

The literature contains evidence from some studies of asymmetric patterns of choice cycles in the direction consistent with regret theory, and evidence from other studies of asymmetries in the opposite direction. This article reports an experiment showing that both patterns occur within the same sample of respondents operating in the same experimental environment. We discuss the implications for modelling behaviour in such environments.

A decision under ‘complete uncertainty’ is one where the decision maker knows the set of possible outcomes for each decision, but cannot assign probabilities to those outcomes. This way, the problem of ranking decisions is reduced to a problem of ranking sets of outcomes. All rankings that have emerged in the literature in this domain imply transitivity. In the current study, transitivity is subjected to an empirical evaluation in two experiments, where subjects are asked to choose between sets of monetary (...) consequences. After analysis with a Bayes Factor, very few violations of transitivity were found. It can be concluded that transitivity seems a plausible condition for the ranking of sets of monetary consequences. (shrink)

In binary choice between discrete outcome lotteries, an individual may prefer lottery L1 to lottery L2 when the probability that L1 delivers a better outcome than L2 is higher than the probability that L2 delivers a better outcome than L1. Such a preference can be rationalized by three standard axioms (solvability, convexity and symmetry) and one less standard axiom (a fanning-in). A preference for the most probable winner can be represented by a skew-symmetric bilinear utility function. Such a utility function (...) has the structure of a regret theory when lottery outcomes are perceived as ordinal and the assumption of regret aversion is replaced with a preference for a win. The empirical evidence supporting the proposed system of axioms is discussed. (shrink)

In this paper, I argue for a new normative theory of rational choice under risk, namely expected comparative utility (ECU) theory. I first show that for any choice option, a, and for any state of the world, G, the measure of the choiceworthiness of a in G is the comparative utility (CU) of a in G—that is, the difference in utility, in G, between a and whichever alternative to a carries the greatest utility in G. On the basis of this (...) principle, I then argue that for any agent, S, faced with any decision under risk, S should rank his or her decision options (in terms of how choiceworthy they are) according to their comparative expected comparative utility (CECU) and should choose whichever option carries the greatest CECU. For any option, a, a’s CECU is the difference between its ECU and that of whichever alternative to a carries the greatest ECU, where a’s ECU is a probability‐weighted sum of a’s CUs across the various possible states of the world. I lastly demonstrate that in some ordinary decisions under risk, ECU theory delivers different verdicts from those of standard decision theory. (shrink)

This paper reports an experiment which investigates a possible cognitive antecedent of event-splitting effects (ESEs) experimentally observed by Starmer and Sugden (1993) and Humphrey (1995) – the learning of absolute frequency of event category impacting on the learning of probability of event category – and reveals some evidence that it is responsible for observed ESEs. It is also suggested and empirically substantiated that stripped-down prospect theory will accurately predict ESEs in some decision making tasks, but will not perform well in (...) others. This contention, it is argued, is indicative of fundamental descriptive shortcomings in the economic conception of choice under uncertainty and may entail implications beyond the direct concerns of this paper. (shrink)

It is a familiar argument that advocates accommodating the so-called paradoxes of decision theory by abandoning the “independence” postulate. After all, if we grant that choice reveals preference, the anomalous choice patterns of the Allais and Ellsberg problems violate postulate P2 of Savage's system. The strategy of making room for new preference patterns by relaxing independence is adopted in each of the following works: Samuelson, Kahneman and Tversky's “Prospect Theory”, Allais and Hagen, Fishburn, Chew and MacCrimmon, McClennen, and in closely (...) argued essays by Machina. (shrink)

Normative theories suggest that inconsistencies be pointed out to the Decision Maker who is thus given the chance to modify his/her judgments. In this paper, we suggest that the inconsistencies problem be transferred from the Decision Maker to the Analyst. With the Mixture of Maximal Quasi Orders, rather than pointing out incoherences for the Decision Maker to change, these inconsistencies may be used as new source of information to model his/her preferences.

Axiomatizations of ordered preference differences typically assume that preferences are ordered. However, the mere assumption that preference differences can be ordered says nothing about whether preferences themselves are ordered. Utility representations for ordered differences without ordered preferences are investigated.

This paper tests a novel implication of the original version of prospect theory (Kahneman and Tversky, 1979): that choices may systematically violate transitivity. Some have interpreted this implication as a weakness, viewing it as an anomaly generated by the ‘editing phase’ of prospect theory which can be rendered redundant by an appropriate re-specification of the preference function. Although there is some existing evidence that transitivity fails descriptively, the particular form of non-transitivity implied by prospect theory is quite distinctive and hence (...) presents an ideal opportunity to expose that theory to test. An experiment is reported which reveals strong evidence of the predicted intransitivity. It is argued that the existence of this new form of non-transitive behaviour presents a fresh theoretical challenge to those seeking descriptively adequate theories of choice behaviour, and a particular challenge to those who seek explanations within the conventional economic paradigm of utility maximisation. (shrink)

This PhD thesis focuses on the philosophical foundations of Neuroeconomics, an innovative research program which combines findings and modelling tools from economics, psychology and neuroscience to account for human choice behaviour. The proponents of Neuroeconomics often manifest the ambition to foster radical modifications in the accounts of choice behaviour developed by its parent disciplines. This enquiry provides a philosophically informed appraisal of the potential for success and the relevance of neuroeconomic research for economics. My central claim is that neuroeconomists can (...) help other economists to build more predictive and explanatory models, yet are unlikely to foster revolutionary modifications in the economic theory of choice. The contents are organized as follows. In chapters 1-2, I present neuroeconomists’ investigative tools, distinguish the most influential approaches to neuroeconomic research and reconstruct the case in favour of a neural enrichment of economic theory. In chapters 3-7, I combine insights from neuro-psychology, economic methodology and philosophy of science to develop a systematic critique of Neuroeconomics. In particular, I articulate four lines of argument to demonstrate that economists are provisionally justified in retaining a methodologically distinctive approach to the modelling of decision making. My first argument points to several evidential and epistemological concerns which complicate the interpretation of neural data and cast doubt on the inferences neuroeconomists often make in their studies. My second argument aims to show that the trade-offs between the modelling desiderata that neuroeconomists and other economists respectively value severely constrain the incorporation of neural insights into economic models. My third argument questions neuroeconomists’ attempts to develop a unified theory of choice behaviour by identifying some central issues on which they hold contrasting positions. My fourth argument differentiates various senses of the term ‘revolution’ and illustrates that neuroeconomists are unlikely to provide revolutionary contributions to economic theory in any of these senses. (shrink)

Recently proposed models of risky choice imply systematic violations of transitivity of preference. This study explored whether people show the predicted intransitivity of the two models proposed to account for the certainty effect in Allais paradoxes. In order to distinguish “true” violations from those produced by “error,” a model was fit in which each choice can have a different error rate and each person can have a different pattern of preferences that need not be transitive. Error rate for a choice (...) is estimated from preference reversals between repeated presentations of the same choice. Results showed that few people repeated intransitive patterns. We can retain the hypothesis that all participants were transitive. (shrink)

The devices with which experimental economists account for and justify their own and their opponents’ views are investigated by examining transcripts of interviews with two participants in experimental economics. The earlier investigations of natural scientists’ discourse provide material for comparisons. The results suggest that in assessing an opponent’s deviating view experimentalists in economics can be more cautious than natural scientists to characterize their opponents as influenced by personal and social factors. Indeed, they seem to admit that to some extent both (...) their own and their opponents’ behavior involves these influences. Regarding the development of disputes, the respondents constructed accounts where general optimism concerning the ability of empirical arguments to resolve disputes was linked with an idea of dialogues between theorists and experimentalists as vehicles of progress. (shrink)