Whereas the literature on choice overload has shown that people tend to defer their choice or experience less satisfaction under choice proliferation, this paper aims to test how the profusion of choice directly affects individuals’ revealed preferences over options. To do so, we run an experiment where subjects have to compare familiar and unfamiliar options under different choice contexts. We hypothesize that, as the choice set expands, the decisions become harder and more costly and subjects may find familiar items relatively (...) more attractive. Our results provide clear evidence of set size dependence of revealed preferences: Subjects prefer familiar items more frequently in larger choice sets. This evidence is robust to a number of experimental variations and statistical controls. (shrink)

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)

In most forms of evaluation the benefits of preventive health care are narrowly defined in terms of reductions in future morbidity and mortality. Thus it is normally assumed that it is the final health gains alone which bear utility. This discounts the possibility that individuals may derive utility from the process of health care and other outcomes as well as the end health states. Attributes such as anxiety, reassurance, autonomy, regret and hope provide potential benefits or disbenefits in addition to (...) health gains. This paper explores the concept of process utility in the specific context of preventive goods. Characteristics such as information, awareness and autonomy are examined for two preventive goods—hip protectors and mammographic screening. If individuals trade off process attributes for final health outcomes, then to ignore process utility may lead to a sub-optimal allocation of resources. (shrink)

Previous experimental and observational work suggests that people act more generously when they are observed and observe others in social settings. However, the explanation for this is unclear. An individual may want to send a signal of her generosity to improve her own reputation. Alternately (or additionally) she may value the public good or charity itself and, believing that contribution levels are strategic complements, give more to influence others to give more. We perform the first series of laboratory experiments that (...) can separately estimate the impact of these two social effects, and test whether realized influence is consistent with the desire to influence, and whether either of these are consistent with anticipated influence. Our experimental subjects were given the opportunity to contribute from their endowment to Bread for the World, a development NGO. Depending on treatment, “leader” subjects’ donations were reported to other subjects either anonymously or with their identities, and these were reported either before these “follower” subjects made their donation decisions. We find that “leaders” are influential only when their identities are revealed along with their donations, and female leaders are more influential than males. Identified leaders’ predictions suggest that are aware of their influence. They respond to this by giving more than either the control group or the unidentified leaders. We find mixed evidence for “reputation-seeking.”. (shrink)

Three experiments investigated the contrasting predictions of the evolutionary and decision-theoretic approaches to deontic reasoning. Two experiments embedded a hazard management (HM) rule in a social contract scenario that should lead to competition between innate modules. A 3rd experiment used a pure HM task. Threatening material was also introduced into the antecedent, p, of a deontic rule, if p then must q. According to the evolutionary approach, more HM responses (Cosmides & Tooby, 2000) are predicted when p is threatening, whereas (...) decision theory predicts fewer. All 3 experiments were consistent with decision theory. Other theories are discussed, and it is concluded that they cannot account for the behavior observed in these experiments. (shrink)

The increasing availability of passively observed data has yielded a growing interest in “data fusion” methods, which involve merging data from observational and experimental sources to draw causal conclusions. Such methods often require a precarious tradeoff between the unknown bias in the observational dataset and the often-large variance in the experimental dataset. We propose an alternative approach, which avoids this tradeoff: rather than using observational data for inference, we use it to design a more efficient experiment. We consider the case (...) of a stratified experiment with a binary outcome and suppose pilot estimates for the stratum potential outcome variances can be obtained from the observational study. We extend existing results to generate confidence sets for these variances, while accounting for the possibility of unmeasured confounding. Then, we pose the experimental design problem as a regret minimization problem subject to the constraints imposed by our confidence sets. We show that this problem can be converted into a concave maximization and solved using conventional methods. Finally, we demonstrate the practical utility of our methods using data from the Women’s Health Initiative. (shrink)

Several decision rules, including the minimax regret rule, have been posited to suggest optimizing strategies for an individual when neither objective nor subjective probabilities can be associated to the various states of the world. These all share the shortcoming of focusing only on extreme outcomes. This paper suggests an alternative approach of ‘tempered regrets’ which may more closely replicate the decision process of individuals in those situations in which avoiding the worst outcome tempers the loss from not achieving the best (...) outcome. The assumption of total ignorance of the probabilities associated with the various states is maintained. Applications and illustrations from standard neoclassical theory are discussed. (shrink)

John Rawles's criticism of QALYs are seen as being both imprecise and largely unhelpful. This paper accepts that there are problems in both QALYs themselves and in the current decision-making processes with which they seek to help. The QALY pliers tend to play down the former and the QALY knockers the latter. It is suggested that theories (regret theory and prospect theory) other than expected utility theory, which is normally seen as the basis for QALYs, may provide better approaches to (...) measuring health service outputs. Thus equity, information and decision-making per se are not handled as well in the expected utility QALYs as they could be. Developing better QALYs, with qualifications, is the goal. (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)

A central point of debate over environmental policies concerns how future costs and benefits should be assessed. The most commonly used method for assessing the value of future costs and benefits is economic discounting. One often-cited justification for discounting is uncertainty. More specifically, it is risk aversion coupled with the expectation that future prospects are more risky. In this paper I argue that there are at least two reasons for disputing the use of risk aversion as a justification for discounting (...) when dealing with longterm decisions, one technical and one ethical. Firstly, I argue that technically, it implies an inconsistency between theory and practice. And secondly, I argue that discounting for uncertainty relies on a form of individualism which, while reasonable in standard microeconomic theory where an agent chooses how to spread her own consumption over her own lifetime, is inappropriate in the context of intergenerational social decisions. (shrink)

John Dewey and Ludwig Wittgenstein offer devastating critiques of the dominant model of human action that each inherited in their own time. Dewey, very early in his philosophical career, ostensibly put the stimulus–response mechanical understanding of action to rest with his “reflex-arc” concept article. Wittgenstein famously redescribed action as moves within language games that interconnect to constitute an interpretively open-ended form of life. In each case, these fundamental insights serve as heuristics, guiding our intellectual activity with regard to understanding our (...) practices, and as reminders in approaching problems. Several scholars have interpreted Dewey and Wittgenstein as allies in a grand project of... (shrink)

While the paradigm of utility maximisation has formed the basis of the majority of applications in discrete choice modelling for over 40 years, its core assumptions have been questioned by work in both behavioural economics and mathematical psychology as well as more recently by developments in the RUM-oriented choice modelling community. This paper reviews the basic properties with a view to explaining the historical pre-eminence of utility maximisation and addresses the question of what departures from the paradigm may be necessary (...) or wise in order to accommodate richer behavioural patterns. We find that many, though not all, of the behavioural traits discussed in the literature can be approximated sufficiently closely by a random utility framework, allowing analysts to retain the many advantages that such an approach possesses. (shrink)

We examine if and to what extent choice dispositions can allow dependence on contexts and maintain consistency over time, in a dynamic environment under uncertainty. We focus on one of the context dependence properties, opportunity dependence because of being affected by anticipated regret, where the consequentialist choice framework is maintained. There are two sources of potential inconsistency: one is arrival of information, and the other is changing opportunities. First, we go over the general method of resolution of potential inconsistency, by (...) taking any kinds of inconsistency as given constraints. Second, we characterize a class of choice dispositions that are consistent to information arrival, but may be inconsistent to changing opportunities. Finally, we consider the overall requirement of dynamic consistency and show that it necessarily implies each of consistency to information arrival and independence of choice opportunities. The last result states that the two kinds of potential inconsistency cannot “compensate” each other to recover dynamic consistency overall. (shrink)

Proponents of neuroeconomics often argue that better knowledge of the human neural architecture enables economists to improve standard models of choice. In their view, these improvements provide compelling reasons to use neural findings in constructing and evaluating economic models. In a recent article, I criticized this view by pointing to the trade-offs between the modeling desiderata valued by neuroeconomists and other economists, respectively. The present article complements my earlier critique by focusing on three modeling desiderata that figure prominently in economic (...) and neuroeconomic modeling. For each desideratum, I examine findings that neuroeconomists deem to be especially relevant for economists and argue that neuroeconomists have failed to substantiate their calls to use these findings in constructing and evaluating economic models. In doing so, I identify methodological and evidential constraints that will continue to hinder neuroeconomists’ attempts to improve such models. Moreover, I draw on the literature on scientific modeling to advance the ongoing philosophical discussion regarding the prospects of interdisciplinary models of choice. (shrink)

Individual differences on a variety of framing and conjunction problems were examined in light of Slovic and Tversky's (1974) understanding/acceptance principle-that more reflective and skilled reasoners are more likely to affirm the axioms that define normative reasoning and to endorse the task construals of informed experts. The predictions derived from the principle were confirmed for the much discussed framing effect in the Disease Problem and for the conjunction fallacy on the Linda Problem. Subjects of higher cognitive ability were disproportionately likely (...) to avoid each fallacy. Other framing problems produced much more modest levels of empirical support. It is conjectured that the varying patterns of individual differences are best explained by two-process theories of reasoning (e.g. Evans, 1984, 1996; Sloman, 1996) conjoined with the assumption that the two processes differentially reflect interactional and analytic intelligence. (shrink)

We present a theory of decision by sampling (DbS) in which, in contrast with traditional models, there are no underlying psychoeconomic scales. Instead, we assume that an attribute’s subjective value is constructed from a series of binary, ordinal comparisons to a sample of attribute values drawn from memory and is its rank within the sample. We assume that the sample reflects both the immediate distribution of attribute values from the current decision’s context and also the background, real-world distribution of attribute (...) values. DbS accounts for concave utility functions; losses looming larger than gains; hyperbolic temporal discounting; and the overestimation of small probabilities and the underestimation of large probabilities. Ó 2005 Elsevier Inc. All rights reserved. (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)

Neuroeconomic studies are liable to fall into the reverse inference fallacy, a form of affirmation of the consequent. More generally neuroeconomics relies on two problematic steps, namely the inference from brain activities to the engagement of cognitive processes in experimental tasks, and the presupposition that such inferred cognitive processes are relevant to economic theorizing. The first step only constitutes the reverse inference fallacy proper and ways to correct it include a better sense of the neural response selectivity of the targeted (...) brain areas and a better definition of relevant cognitive ontologies for neuroeconomics. This second way also allows increased coherence between the cognitive processes actually involved in neuroeconomics experiments and the theoretical constructs of economics. We suggest means of increasing neural response selectivity in neuroeconomic experimental paradigms. We also discuss how the choice of cognitive ontologies can both avoid implicit reductionist strategies (from economic constructs to neural patterns) and irrelevance, as cognitive processes engaged in experimental tasks may lack immediate bearing on the study of economic behavior. With these joint improvements neuroeconomics can be a progressive science. (shrink)

Modeling risk in a prescriptively plausible way represents a major issue in decision theory. The benchmarking procedure, being based on the satisficing principle and providing a probabilistic interpretation of expected utility (EU) theory, is prescriptive. Because it is a target-based language, the benchmarking procedure can be applied naturally to finance. In finance, the centrality of risk is widely recognized, but the risk measures that are commonly used to assess risk are too poor as a decision making tool. In this paper (...) we propose a two-stage decision criterion of choice under risk that provides an application of benchmarking to finance through a risk measure. We will analyze some nonexpected utility theories, in particular lottery dependent utility, as potential frameworks for our criterion. (shrink)

Daniel Ellsberg presented in Ellsberg (The Quarterly Journal of Economics 75:643–669, 1961) various examples questioning the thesis that decision making under uncertainty can be reduced to decision making under risk. These examples constitute one of the main challenges to the received view on the foundations of decision theory offered by Leonard Savage in Savage (1972). Craig Fox and Amos Tversky have, nevertheless, offered an indirect defense of Savage. They provided in Fox and Tversky (1995) an explanation of Ellsberg’s two-color problem (...) in terms of a psychological effect: ambiguity aversion . The ‘comparative ignorance’ hypothesis articulates how this effect works and explains why it is important to an understanding of the typical pattern of responses associated with Ellsberg’s two-color problem. In the first part of this article we challenge Fox and Tversky’s explanation. We present first an experiment that extends Ellsberg’s two-color problem where certain predictions of the comparative ignorance hypothesis are not confirmed. In addition the hypothesis seems unable to explain how the subjects resolve trade-offs between security and expected pay-off when vagueness is present. Ellsberg offered an explanation of the typical behavior elicited by his examples in terms of these trade-offs and in section three we offer a model of Ellsberg’s trade-offs. The model takes seriously the role of imprecise probabilities in explaining Ellsberg’s phenomenon. The so-called three-color problem was also considered in Fox and Tversky (1995). We argue that Fox and Tversky’s analysis of this case breaks a symmetry with their analysis of the two-color problem. We propose a unified treatment of both problems and we present a experiment that confirms our hypothesis. (shrink)