Prior research has used an Interactive Landslide Simulator tool to investigate human decision making against landslide risks. It has been found that repeated feedback in the ILS tool about damages due to landslides causes an improvement in human decisions against landslide risks. However, little is known on how theories of learning from feedback would account for human decisions in the ILS tool. The primary goal of this paper is to account for human decisions in the ILS tool via computational models (...) based upon reinforcement learning and to explore the model mechanisms involved when people make decisions in the ILS tool. Four different reinforcement-learning models were developed and evaluated in their ability to capture human decisions in an experiment involving two conditions in the ILS tool. The parameters of an Expectancy-Valence model, two Prospect-Valence-Learning models, a combination EV-PU model, and a random model were calibrated to human decisions in the ILS tool across the two conditions. Later, different models with their calibrated parameters were generalized to data collected in an experiment involving a new condition in ILS. When generalized to this new condition, the PVL-2 model’s parameters of both damage-feedback conditions outperformed all other RL models. We highlight the implications of our results for decision making against landslide risks. (shrink)

Often in insurance decision making, there are risk factors on which the insurer has an informational advantage over the consumer. But when the insurer sets and posts a premium for the consumer to consider, the consumer can potentially use the premium as an informational cue for the loss probability, and thereby to reduce the insurer’s informational advantage. We study, by means of a behavioral model, how consumers would use the premium as an informational cue in such contexts. The belief formation (...) process in our model assumes that both prior knowledge and the premium might have an impact on the consumer’s estimate of the loss probability. Moreover, the premium impacts the estimate through an anchoring-and-adjustment process. The model potentially leads to violations of rational expectations, with which the consumer overestimates the loss probability beyond what could be inferred from the premium, given the premise that the insurer must seek to break even or earn an expected profit. Our model analysis moreover implies that the frequency of such violations is non-increasing as the premium increases. Last, the model implies a generally inverted-U relationship between insurance demand and the premium so that the demand is upward sloping at low premium levels and downward sloping at high premium levels. A pilot field study and a laboratory experiment provide robust evidence for our model implications and calibrations for its parameters. (shrink)

We use the multiple price list method and a recursive expected utility theory of smooth ambiguity to separate out attitude towards risk from that towards ambiguity. Based on this separation, we investigate if there are differences in agent behaviour under uncertainty over gain amounts vis-a-vis uncertainty over loss amounts. On an aggregate level, we find that (i) subjects are risk averse over gains and risk seeking over losses, displaying a “reflection effect” and (ii) they are ambiguity neutral over gains and (...) are mildly ambiguity seeking over losses. Further analysis shows that on an individual level, and with respect to both risky and ambiguous prospects, there is limited incidence of a reflection effect where subjects are risk/ambiguity averse (seeking) in gains and seeking (averse) in losses, though this incidence is higher for ambiguous prospects. A very high proportion of such cases of reflection exhibit risk (ambiguity) aversion in gains and risk (ambiguity) seeking in losses, with the reverse effect being significantly present in the case of risk but almost absent in case of ambiguity. Our results suggest that reflection across gains and losses is not a stable individual characteristic, but depends upon whether the form of uncertainty is precise or ambiguous, since we rarely find an individual who exhibits reflection in both risky and ambiguous prospects. We also find that correlations between attitudes towards risk and ambiguity were domain dependent. (shrink)

The identification of regularities in time-dependent functional structures leads to turn patterns, observed according to a given time resolution, into functional attractors on which it is first possible to found any complex system. Rationality is introduced under the form of probabilities for functions to make up a given attractor beyond the first rough descriptive pattern. These physically characterized attractors are the medium enabling the definition of value as an extension of the Prospect Theory overall utility, considering that the actions produced (...) by their functions are outcomes which are modulated by PT psychological value functions and an operational value appears naturally as an optimization taking account of diminishing sensitivity to action efficiency. Nevertheless, this diminishing sensitivity, when applied to negative actions, introduces also a bias of negative externalities underestimation. An attractor-based complex system evolution in an industrial context is described according to Manufacturing Readiness Level and to the main milestones of an industrial project, corresponding to singular points of maturity expressed in terms of probability—or decision—weighting, up to the system release to the market. So, a maturity assessment heuristics is proposed both for the system development and for its marketing. The supply and demand law is established, highlighting that the ideal case of a purely mature economy can be a good approximation reducing the complexity of the exchanges analysis. Equilibria are discussed as depending on an initial point from which the usual Gaussian probability distribution and a speculative weight qualify equilibrium. (shrink)

We develop an algorithm that can be used to approximate a decisionmaker’s beliefs for a class of preference structures that includes, among others, α-maximin expected utility preferences, Choquet expected utility preferences, and, more generally, constant additive preferences. For both exact and statistical approximation, we demonstrate convergence in an appropriate sense to the true belief structure.

We find suggestive evidence that emotional balance has an impact on probability weighting incremental to demographic controls. Specifically, low negative affectivity (implying high emotional balance) tends to be a characteristic of those whose probability weighting functions exhibit lower curvature and more neutral elevation. In other words, emotional balance seems to push people in the direction of normative expected utility theory.

Until the advent of behavioral and neuroeconomics, economics has generally tended to undervalue, on average, the importance of fear. Fear has traditionally been regarded as pertaining to an alternative domain with respect to rationality: it has thus been considered as triggering mechanism of anomalous, even irrational behavior. Conversely, the article speculates on the complexity of the concept of fear and of the social effects it is thought to produce. While discussing the eventual desirability of a freed-from-fear world and Western obsession (...) with risk management and safety from the economic problem and other pressures, the paper provides a general introduction to the relevance of the relatively unexplored issue of fear to economics as discipline as well as to applied economics in public policy. (shrink)

Proposals for the democratization of technology imply a necessary condition of universal emancipatory technological literacy. However, in the literature on the topic, people’s willingness to assume the cost in time and effort involved in acquiring that knowledge is often taken for granted. In this paper, we apply Anthony Downs’s economic theory of political action in democracy to analyze the cost-benefit ratio of this literacy from the perspective of the individual subject who should acquire it. Our conclusion is that the cost (...) does not rationally justify in an instrumental sense a benefit that, being mainly of an indivisible nature, motivates individuals to avoid their share of the cost to produce it. (shrink)

Bicchieri (The grammar of society: The nature and dynamics of norms, 2006, xi) presents a formal analysis of norms that answers the questions of "when, how, and to what degree" norms affect human behavior in the play of games. The purpose of this paper is to apply a variation of the Bicchieri norms analysis to generate a model of norms-based play of the traditional deterrence game (Zagare and Kilgour, Int Stud Q 37: 1-27, 1993; Morrow, Game theory for political scientists, (...) 1994), the paradigmatic model of conflict initiation in International Relations. The deterrence game is modeled here as a sequential decision problem. As such, our analysis is an adaptation of Bicchieri's game-theoretic formalization of norms to what we will call the norms account of the game. We find that the standard account of the traditional deterrence game is a special case of the norms account of the game. We also show that the adaptation of Bicchieri's analysis of social norms yields new and interesting claims regarding when, how, and to what degree norms operate as a constraint on risk-related behavior in the traditional deterrence game. Moreover, we discuss how the results of the model provide testable propositions of relevance to the role of norms in international interactions. (shrink)

We tested the plausibility of a cognitive-emotional model to understand the effects of messages framed in terms of gain, non-loss, non-gain, and loss, and related to the health consequences of red/processed meat consumption. A total of 544 Italian participants reported their attitude toward reduced red/processed meat consumption and intention to eat red/processed meat. One week later, participants were randomly assigned to four different message conditions: gain messages focused on the positive health outcomes associated with low meat consumption; non-loss messages focused (...) on the avoided negative health outcomes associated with low meat consumption; non-gain messages focused on the missed positive health outcomes associated with high meat consumption; loss messages focused on the negative health outcomes associated with high meat consumption. After reading the messages, participants answered a series of questions regarding their emotional and cognitive reactions to the messages, their evaluation of the messages, and again their attitude and intention toward red/processed meat consumption. Comparing different multivariate linear models under the Bayesian approach, we selected the model with the highest plausibility conditioned to observed data. In this model, message-induced fear influenced systematic processing, which in turn positively influenced message evaluation and attitude, leading to reduced intention to consume red/processed meat. Vice versa, message-induced anger reduced systematic processing, which in turn negatively influenced message evaluation, and led to no effect on attitude and intention. The comparison among message conditions showed that gain and non-loss messages activated integrated emotional and cognitive processing of the health recommendation, while loss and non-gain messages mainly activated emotional shortcuts toward attitude and intention. Overall, these results advance our comprehension of the effects of message framing on receivers' attitudes and intentions. (shrink)

This study investigates the large French fair trade (FT) market and the importance of FT coffee within it, in an attempt to identify some general features of FT consumers. On the basis of 7,587 transactions, the authors abo determine the impact of FT characteristics on customer behavior. The main result is somewhat surprising: FT coffee purchases seem to involve a temporary commitment as FT coffee consumers appear less loyal than traditional coffee consumers. The authors derive some business and academic implications.

The objective of this article is to investigate the impact of agent heterogeneity (as regards their attitude towards cooperation) and payoff structure on cooperative behaviour, using an experimental setting with incomplete information. A game of chicken is played considering two types of agents: ‘unconditional cooperators’, who always cooperate, and ‘strategic cooperators’, who do not cooperate unless it is in their interest to do so. Overall, our data show a much higher propensity to cooperate than predicted by theory. They also suggest (...) that agent heterogeneity matters: the higher the proportion of ‘strategic cooperators’ in the population, the higher their probability to cooperate. Finally, our data confirm that higher rewards to cooperation (embedded in the payoff structure) tend to lower defection. Taken together, our results suggest that the subjects might be non-expected utility maximizers, dealing with both outcomes and probabilities in a non-linear manner. (shrink)

The variations in how subjects respond to positively or negatively framed descriptions of the same issue have received attention from social science research, where, nevertheless, a naïve understanding of speech interpretation has undermined the different explanations offered. The present paper explores the semantic-pragmatic side of framing effects and provides a unifying explanation of this phenomenon in terms of a combined effect of pragmatic presuppositions and default implicatures. The paper contributes to a more comprehensive understanding of representations and cognitive processes involved (...) in the framing bias by showing how well-entrenched linguistic practices associated to frame choice, and conducive to an implicit focus, result in default implicatures on the addressee’s side. (shrink)

To explain social learning without invoking the cognitively complex concept of imitation, many learning mechanisms have been proposed. Borrowing an idea used routinely in cognitive psychology, we argue that most of these alternatives can be subsumed under a single process, priming, in which input increases the activation of stored internal representations. Imitation itself has generally been seen as a This has diverted much research towards the all-or-none question of whether an animal can imitate, with disappointingly inconclusive results. In the great (...) apes, however, voluntary, learned behaviour is organized hierarchically. This means that imitation can occur at various levels, of which we single out two clearly distinct ones: the a rather detailed and linear specification of sequential acts, and the a broader description of subroutine structure and the hierarchical layout of a behavioural Program level imitation is a high-level, constructive mechanism, adapted for the efficient learning of complex skills and thus not evident in the simple manipulations used to test for imitation in the laboratory. As examples, we describe the food-preparation techniques of wild mountain gorillas and the imitative behaviour of orangutans undergoing to the wild. Representing and manipulating relations between objects seems to be one basic building block in their hierarchical programs. There is evidence that great apes suffer from a stricter capacity limit than humans in the hierarchical depth of planning. We re-interpret some chimpanzee behaviour previously described as and suggest that all great apes may be able to imitate at the program level. Action level imitation is seldom observed in great ape skill learning, and may have a largely social role, even in humans. (shrink)

Our aim in this paper was to establish an empirical evaluation for similarity effects modeled by Rubinstein; Azipurua et al.; Leland; and Sileo. These tests are conducted through a sensitivity analysis of two well-known examples of expected utility (EU) independence violations. We found that subjective similarity reported by respondents was explained very well by objective measures suggested in the similarity literature. The empirical results of this analysis also show that: (1) the likelihood of selection for the riskier choice increases as (...) the pair becomes more similar, (2) these choice patterns are consistent with well-known independence violations of expected utility, and (3) a significant proportion of individuals exhibit intransitive choice patterns predicted under similarity effects, but not allowed under generalized expected utility models for risky choice. (shrink)

This paper shows that expected utility belongs to the intersection of models satisfying betweenness and a homotheticity condition for risky choice. Betweenness models can accommodate variable risk attitudes, originally highlighted by the Allais paradox, by restricting indifference curves to be linear while allowing non-parallelism. Homotheticity, in contrast, restricts indifference curves to be parallel while permitting non-linearities, such as those highlighted by inverse-S probability weighting. Data from an experiment indicate that approximately 2/3s of participants satisfied homotheticity. Of this group, about half (...) satisfied the expected utility hypothesis. The other half violated expected utility and therefore betweenness. These results indicate that homothetic preferences, and in particular those violating betweenness, can be empirically relevant for decision making under risk. (shrink)

After contrasting obscurantism with bullshit, we explore some ways in which obscurantism is typically justified by investigating a notorious test-case: defences of Lacanian psychoanalysis. Obscurantism abuses the reader's natural sense of curiosity and interpretive charity with the promise of deep and profound insights about a designated subject matter that is often vague or elusive. When the attempt to understand what the speaker means requires excessive hermeneutic efforts, interpreters are reluctant to halt their quest for meaning. We diagnose this as a (...) case of psychological loss aversion, in particular, the aversion to acknowledging that there was no hidden meaning after all, or that whatever meaning found was projected onto the text by the reader herself. (shrink)

I have claimed that risk-weighted expected utility maximizers are rational, and that their preferences cannot be captured by expected utility theory. Richard Pettigrew and Rachael Briggs have recently challenged these claims. Both authors argue that only EU-maximizers are rational. In addition, Pettigrew argues that the preferences of REU-maximizers can indeed be captured by EU theory, and Briggs argues that REU-maximizers lose a valuable tool for simplifying their decision problems. I hold that their arguments do not succeed and that my original (...) claims still stand. However, their arguments do highlight some costs of REU theory. (shrink)

The orthodox theory of instrumental rationality, expected utility (EU) theory, severely restricts the way in which risk-considerations can figure into a rational individual's preferences. It is argued here that this is because EU theory neglects an important component of instrumental rationality. This paper presents a more general theory of decision-making, risk-weighted expected utility (REU) theory, of which expected utility maximization is a special case. According to REU theory, the weight that each outcome gets in decision-making is not the subjective probability (...) of that outcome; rather, the weight each outcome gets depends on both its subjective probability and its position in the gamble. Furthermore, the individual's utility function, her subjective probability function, and a function that measures her attitude towards risk can be separately derived from her preferences via a Representation Theorem. This theorem illuminates the role that each of these entities plays in preferences, and shows how REU theory explicates the components of instrumental rationality. (shrink)

My book Risk and Rationality argues for a new alternative to the orthodox theory of rational decision-making. This alternative, risk-weighted expected utility maximization, holds that there are three important components involved in rational decision-making: utilities, probabilities, and risk-attitudes. This essay explains the basic outline of the theory and precisely how it differs from the orthodox theory. It also summarizes the main threads of argument in the book.

Abstract‘Monkey see, monkey do’ is an old saying referring to imitating another's actions without necessarily understanding the underlying motivations or being concerned about consequences, such as propagating harmful behaviors. This study examines the likelihood of firms imitating and proliferating others’ unethical, irresponsible practices thereby exacerbating harmful effects among even more firms; in doing so, irresponsible contagions can rapidly spread more broadly, negatively affecting even more consumers. Building upon rivalry- and information-based imitation theories, we examine if harmful behaviors of others, in (...) combination with misbehavior of referent firms, influences the likelihood of a firm to engage in irresponsible consumer-related practices. After examining 25,824 firm-year observations over 12 years, our findings suggest that imitation of harmful product-related behavior occurs; with size an important factor related to proliferation of harmful behaviors. Testing the model against a holdout sample finds 94% accuracy. Implications for scholars, managers, and policy makers are explored. (shrink)

In the present paper we empirically investigate the psychometric properties of some of the most famous statistical and logical cognitive illusions from the “heuristics and biases” research program by Daniel Kahneman and Amos Tversky, who nearly 50 years ago introduced fascinating brain teasers such as the famous Linda problem, the Wason card selection task, and so-called Bayesian reasoning problems (e.g., the mammography task). In the meantime, a great number of articles has been published that empirically examine single cognitive illusions, theoretically (...) explaining people’s faulty thinking, or proposing and experimentally implementing measures to foster insight and to make these problems accessible to the human mind. Yet these problems have thus far usually been empirically analyzed on an individual-item level only (e.g., by experimentally comparing participants’ performance on various versions of one of these problems). In this paper, by contrast, we examine these illusions as a group and look at the ability to solve them as a psychological construct. Based on an sample ofN= 2,643 Luxembourgian school students of age 16–18 we investigate the internal psychometric structure of these illusions (i.e., Are they substantially correlated? Do they form a reflexive or a formative construct?), their connection to related constructs (e.g., Are they distinguishable from intelligence or mathematical competence in a confirmatory factor analysis?), and the question of which of a person’s abilities can predict the correct solution of these brain teasers (by means of a regression analysis). (shrink)

This study extends experimental tests of (cumulative) prospect theory (PT) over prospects with more than three outcomes and tests second-order stochastic dominance principles (Levy and Levy, Management Science 48:1334–1349, 2002; Baucells and Heukamp, Management Science 52:1409–1423, 2006). It considers choice behavior of people facing prospects of three different types: gain prospects (losing is not possible), loss prospects (gaining is not possible), and mixed prospects (both gaining and losing are possible). The data supports the distinction of risk behavior into these three (...) categories of prospects, Further, probability weighting and diminishing sensitivity of utility as predicted by PT are observed. Loss aversion is, however, less pronounced, except for choices where one prospect is degenerate. The data suggests that the probability of losing may be relevant for loss aversion. (shrink)

. References. Critical Review: Vol. 18, Democratic Competence, pp. 331-360.

Some recent arguments for paternalist government interventions have been based in empirical results in psychology and behavioral economics that would seem to show that adult human beings are far removed from the ideals of rationality presupposed by much of philosophical and economic theory. In this paper it is argued that we need to move to a different conception of human decision-making competence than the one that lies behind that common line of philosophical and economic thinking, and which actually still lies (...) in the background of some of these recent approaches to paternalist interventions. An alternative picture of human decision-making competence is outlined and four criteria for identifying areas where paternalist interventions have a basic moral and political legitimacy are then identified on the basis of this picture. (shrink)

The paper discusses the concept of explanation in metaphysics. Different types of explanation are identified and explored. Scientific explanation is compared with metaphysical explanation. The comparison illustrates the difficulties with applying the concept of explanation in metaphysics.

This essay situates some recent empirical research on the origin, nature, role, and reliability of moral intuitions against the background of nineteenth-century debates between ethical naturalism and rational intuitionism. The legitimate heir to Millian naturalism is the contemporary method of reflective equilibrium and its defeasible reliance on moral intuitions. Recent doubts about moral intuitions—worries that they reflect the operation of imperfect cognitive heuristics, are resistant to undermining evidence, are subject to framing effects, and are variable—are best addressed by ethical naturalism (...) as part of a broad dialectical equilibrium. (shrink)

El objetivo del artículo consiste en poner en diálogo tres líneas de investigación dentro de la epistemología contemporánea: la Epistemología de la Virtud, el paradigma de la Racionalidad Limitada y la Teoría Argumentativa de la Razón. Frente al problema que interesa analizar aquí, a saber, la búsqueda de un marco teórico que permita diseñar estrategias pedagógicas (tanto al interior de la enseñanza de la filosofía como fuera de ella) sobre premisas realistas, la Epistemología de la Virtud será presentada como una (...) corriente marcadamente optimista desde el punto de vista epistémico. El paradigma de la Racionalidad Limitada representará la contrapartida de dicha corriente, en la medida en que parece conducir a un pesimismo marcado respecto de la posibilidad de diseñar estrategias que permitan perfeccionar las prácticas epistémicas de los sujetos. Frente a estos dos polos, se sugerirá que la Teoría Argumentativa de la Razón (desarrollada en la última década por Hugo Mercier y Dan Sperber) representa una alternativa prometedora por dos razones fundamentales: en primer lugar, porque ofrece una respuesta al problema (enfrentado por el paradigma de la Racionalidad Limitada) del carácter adaptativo de la razón humana desde un punto de vista evolutivo; en segundo lugar, porque permite superar el pesimismo epistémico esencial al paradigma de la Racionalidad Limitada al momento de planificar estrategias pedagógicas realistas y efectivas. (shrink)

The authors demonstrate that ethical judgments can be biased when previous judgments serve as a point of reference against which a current situation is judged. Scenarios describing ethical or unethical sales practices were used in an experiment to prime subjects who subsequently rated the ethics of an ethically ambiguous target scenario. The target tended to be rated as more ethical by subjects primed with unethical scenarios, and less ethical by subjects primed with ethical scenarios. This "contrast effect," however, is contingent (...) upon individual differences. Specifically, subjects with high (versus low) needs for cognition are more likely to process and use the information presented in the priming scenarios as a point of reference against which to judge the target situation, and hence more prone to the contrastive bias. Implications for avoiding unintentional moral relativism in business decision-making are discussed. (shrink)

We test the effect of stake size on ambiguity attitudes. Compared to a baseline condition, we find subjects to be more ambiguity seeking for small-probability gains and large-probability losses under high stakes. They are also more ambiguity averse for large-probability gains and small-probability losses. We trace these effects back to stake effects on decisions under risk and uncertainty. For risk, we replicate previous findings. For uncertainty, we find an increase in probabilistic insensitivity under high stakes that is driven by increased (...) uncertainty aversion for large-probability gains and for small-probability losses. (shrink)

Framing effects occur when different descriptions of the same decision problem give rise to divergent decisions. They can be seen as a violation of the decisiontheoretic version of the principle of extensionality (PE). The PE in logic means that two logically equivalent sentences can be substituted salva veritate. We explore what this notion of extensionality becomes in decision contexts. Violations of extensionality may have rational grounds. Based on some ideas proposed by the psychologist Craig McKenzie and colleagues, we contend that (...) framing effects are justified when the selection of one particular frame conveys choice relevant information. We first discuss this idea from a philosophical point of view, and proceed next to formalize it first in the context of the Bolker–Jeffrey decision theory. Finally, we extend the previous analysis to non-expected utility theories using the Biseparable Preference model introduced by Ghirardato and Marinacci (2001) and therefore show that the analysis is independent of the assumptions of Bayesian decision theory. (shrink)

Sometimes conducting an experiment to ascertain the state of a system changes the state of the system being measured. Kahneman & Tversky modelled this effect with ‘support theory’. Quantum physics models this effect with probability amplitude mechanics. As this paper shows, probability amplitude mechanics is similar to support theory. Additionally, Viscusi's proposed generalized expected utility model has an analogy in quantum mechanics.

This article presents the results of an experiment that completely measures the utility function and probability weighting function for different positive and negative monetary outcomes, using a representative sample of N = 1,935 from the general public. The results confirm earlier findings in the lab, suggesting that utility is less pronounced than what is found in classical measurements where expected utility is assumed. Utility for losses is found to be convex, consistent with diminishing sensitivity, and the obtained loss-aversion coefficient of (...) 1.6 is moderate but in agreement with contemporary evidence. The estimated probability weighting functions have an inverse-S shape and they imply pessimism in both domains. These results show that probability weighting is also an important phenomenon in the general population. Women and lower educated individuals are found to be more risk averse, in agreement with common findings. In contrast to previous studies that ascribed gender differences in risk attitudes solely to differences in the degree utility curvature, however, our results show that this finding is primarily driven by loss aversion and, for women, also by a more pessimistic psychological response toward the probability of obtaining the best possible outcome. (shrink)

Balancing the pros and cons of two options is undoubtedly a very appealing decision procedure, but one that has received scarce scientific attention so far, either formally or empirically. We describe a formal framework for pros and cons decisions, where the arguments under consideration can be of varying importance, but whose importance cannot be precisely quantified. We then define eight heuristics for balancing these pros and cons, and compare the predictions of these to the choices made by 62 human participants (...) on a selection of 33 situations. The Levelwise Tallying heuristic clearly emerges as a winner in this competition. Further refinements of this heuristic are considered in the discussion, as well as its relation to Take the Best and Cumulative Prospect Theory. (shrink)

In this paper, we propose a novel account of desire reports, i.e. sentences of the form 'S wants p'. Our theory is partly motivated by Phillips-Brown's (2021) observation that subjects can desire things even if those things aren't best by the subject's lights. That is, being best isn't necessary for being desired. We compare our proposal to existing theories, and show that it provides a neat account of the central phenomenon.