(2013). Why humans are (sometimes) less rational than other animals: Cognitive complexity and the axioms of rational choice. Thinking & Reasoning: Vol. 19, No. 1, pp. 1-26. doi: 10.1080/13546783.2012.713178.

This paper analyzes the core of cooperative games generated by asymmetric aggregative normal-form games, i.e., games where the payoff of each player depends on his strategy and the sum of the strategies of all players. We assume that each coalition calculates its worth presuming that the outside players stand alone and select individually best strategies. We show that under some mild monotonicity assumptions on payoffs, the resulting cooperative game is balanced and has a non-empty core. Our paper thus offers an (...) existence result for a core notion which is frequently encountered in the theory and applications of cooperative games with externalities. (shrink)

Consequentialists often assume rational monism: the thesis that options are always made rationally permissible by the maximization of the selfsame quantity. This essay argues that consequentialists should reject rational monism and instead accept rational pluralism: the thesis that, on different occasions, options are made rationally permissible by the maximization of different quantities. The essay then develops a systematic form of rational pluralism which, unlike its rivals, is capable of handling both the Newcomb problems that challenge evidential decision theory and the (...) unstable problems that challenge causal decision theory. (shrink)

We provide here a general mathematical framework to model attitudes towards ambiguity which uses the formalism of quantum theory as a “purely mathematical formalism, detached from any physical interpretation”. We show that the quantum-theoretic framework enables modelling of the Ellsberg paradox, but it also successfully applies to more concrete human decision-making tests involving financial, managerial and medical decisions. In particular, we elaborate a mathematical representation of various empirical studies which reveal that attitudes of managers towards uncertainty shift from ambiguity seeking (...) to ambiguity aversion, and viceversa, thus exhibiting hope effects and fear effects. The present framework provides a promising direction towards the development of a unified theory of decisions in the presence of uncertainty. (shrink)

An example shows that 'pairwise preferences' (certain hypothetical choices) can cycle even when rational. General considerations entail that preferences tout court (certain relations of actual valuations) cannot cycle. A world-bayesian theory is explained that accommodates these two kinds of preference, and a theory for rational actions that would have them maximize and be objects of ratifiable choices. It is observed that choices can be unratifiable either because of troublesome credences or because of troublesome preferences. An appendix comments on a third (...) way in which efforts to maximize can be frustrated. (shrink)

This paper presents a new solution to the problems for orthodox decision theory posed by the Pasadena game and its relatives. I argue that a key question raised by consideration of these gambles is whether evaluative compositionality (as I term it) is a requirement of rationality: is the value that an ideally rational agent places on a gamble determined by the values that she places on its possible outcomes, together with their mode of composition into the gamble (i.e. the probabilities (...) assigned to them)? The paper first outlines a certain simple response to the Pasadena game and identifies two problems with this response, the second of which is that it leads to a wholesale violation of evaluative compositionality. I then argue that rationality does not require decision makers to factor in outcomes of arbitrarily low probability. A method for making decisions which flows from this basic idea is then developed, and it is shown that this decision method (Truncation) leads to a limited — as opposed to wholesale — violation of evaluative compositionality. The paper then argues that the truncation method yields solutions to the problems posed by the Pasadena game and its relatives that are both attractive in themselves and superior to those yielded by alternative proposals in the literature. (shrink)

The degrees of belief of rational agents should be guided by the evidence available to them. This paper takes as a starting point the view—argued elsewhere—that the formal model best able to capture this idea is one that represents degrees of belief using Dempster–Shafer belief functions. However degrees of belief should not only respect evidence: they also guide decision and action. Whatever formal model of degrees of belief we adopt, we need a decision theory that works with it: that takes (...) as input degrees of belief so represented. The task of this paper is to develop such a decision theory for the belief function model of degrees of belief. This is not the first paper to attempt that task, but compared to the existing literature it takes a more abstract route to its destination, via a consideration of the very idea of rational decision making in light of one’s beliefs and desires. After presenting the new decision theory and comparing it to existing views, the paper goes on to consider diachronic decision situations. (shrink)

There are circumstances in which we want to predict a series of interrelated events. Faced with such a prediction task, it is natural to consider logically inconsistent predictions to be irrational. However, it is possible to find cases where an inconsistent prediction has higher expected accuracy than any consistent prediction. Predicting tournaments in sports provides a striking example of such a case and I argue that logical consistency should not be a norm of rational predictions in these situations.

The proper treatment of correlation in evolutionary game theory has unexpected connections with recent philosophical discussions of the theory of rational decision. The Logic of Decision (Jeffrey 1983) provides the correct framework for correlated evolutionary game theory and a variant of "ratifiability" is the appropriate generalization of "evolutionarily stable strategy". The resulting theory unifies the treatment of correlation due to kin, population viscosity, detection, signaling, reciprocal altruism, and behavior-dependent contexts. It is shown that (1) a strictly dominated strategy may be (...) selected, and (2) under conditions of perfect correlation a strictly efficient strategy must be selected. (shrink)

We revisit classical Utilitarianism by connecting and generalizing two ideas. The first is that there is a representation theorem possible for hedonic value similar to, but also importantly different from, the one provided by von Neumann and Morgenstern to measure decision utility. The idea is to use objective time, in place of objective chance, to measure hedonic value. This representation for hedonic value delivers a stronger kind of scale than von Neumann–Morgenstern utility, a ratio scale rather than merely an interval (...) scale. The second idea is that measurement on a ratio scale allows the meaningful aggregation of utilities over a group. This is aggregation by product rather than sum. Aggregation by product is known to have interesting Prioritarian consequences. Aggregation becomes complicated when the two approaches are mixed, when hedonic value is mixed with uncertainly. It becomes problematic when pain as well as pleasure is taken into account. (shrink)

American social scientists, with the possible exception of the anthropologists, have typically been ethnocentric in their writings and research. Most of their studies are simply unique to a particular institutional complex, possessing little generality beyond a single socio-cultural system. Nevertheless, social scientists nowadays are evincing increased interest in comparative studies. They are coming to realize that many of their generalizations may be found wanting when tested in the laboratory of world cultures. For the solution of many significant problems cross-cultural comparison (...) seems essential—the relationships among the variables involved must be examined under diverse cultural conditions. (shrink)

Altruism is a popular economic explanation for a wide range of pro-social decisions and actions. It has been applied frequently in several different streams of literature, and is a descriptively compelling model of behavior. This paper provides a theoretical framework for the existence of ordinal and cardinal altruistic value functions, as well as altruistic utility functions, based on an altruistic preference relation. Representation theorems are developed to specify relatively weak conditions under which altruistic value and utility functions can be shown (...) to exist. In addition, conditions that lead to additive forms of these functions are provided. (shrink)

During the last two decades, the literature in management studies has shown a significant increase in interest in the theory of business models, and there has been wide-ranging discussion about the definitions of those models. These studies and discussions have provoked questions about the scientific nature of the foundations of business models. This article attempts to verify whether the proposed constructions of business models meet the objectives of abduction, which is, according to the methodology of science, one of the recognised (...) methods to verify the scientific nature of created theories. The verification was performed by using the method of the Scientific Research Tradition by Larry Laudan. The result unequivocally confirmed that the theory of business models that is created and defined based on management sciences falls under the scope of ScRT. It can be said that according to the methodology of science, the business models theory proposed on the basis of management science points to abduction as a tool that allows for a deeper understanding of the mechanisms of formation and opens a new way of interpretation than is the case when using deduction or induction. (shrink)

The order of stages in a multistage game is often interpreted by looking at earlier stages as involving more long term decisions. For the purpose of making this interpretation precise, the notion of a delay supergame of a bounded multistage game is introduced. A multistage game is bounded if the length of play has an upper bound. A delay supergame is played over many periods. Decisions on all stages are made simultaneously, but with different delays until they become effective. The (...) earlier the stage the longer the delay. A subgame perfect equilibrium of a bounded multistage game generates a subgame perfect equilibrium in every one of its delay supergames. This is the first main conclusion of the paper. A subgame perfect equilibrium set is a set of subgame perfect equilibria all of which yield the same payoffs, not only in the game as a whole, but also in each of its subgames. The second xmain conclusion concerns multistage games with a unique subgame perfect equilibrium set and their delay supergames which are bounded in the sense that the number of periods is finite. If a bounded multistage game has a unique subgame perfect equilibrium set, then the same is true for every one of its bounded delay supergames. Finally the descriptive relevance of multistage game models and their subgame perfect equilibria is discussed in the light of the results obtained. (shrink)

If payoffs are tickets for binary lotteries, which involve only two money prizes, then rationality requires expected value maximization in tickets. This payoff scheme was increasingly used to induce risk neutrality in experiments. The experiment presented here involved lottery choice and evaluation tasks. One subject group was paid in binary lottery tickets, another directly in money. Significantly greater deviations from risk neutral behavior are observed with binary lottery payoffs. This discrepancy increases when subjects have easy access to the alternatives' expected (...) values and mean absolute deviations. Behavioral regularities are observed at least as often as with direct money payoffs. (shrink)

We provide an economic interpretation of the practice consisting in incorporating risk measures as constraints in an expected prospect maximization problem. For what we call the infimum of expectations class of risk measures, we show that if the decision maker (DM) maximizes the expectation of a random prospect under constraint that the risk measure is bounded above, he then behaves as a “generalized expected utility maximizer” in the following sense. The DM exhibits ambiguity with respect to a family of utility (...) functions defined on a larger set of decisions than the original one; he adopts pessimism and performs first a minimization of expected utility over this family, then performs a maximization over a new decisions set. This economic behaviour is called “maxmin under risk” and studied by Maccheroni (Econ Theory 19:823–831, 2002). As an application, we make the link between an expected prospect maximization problem, subject to conditional value-at-risk being less than a threshold value, and a non-expected utility economic formulation involving “loss aversion”-type utility functions. (shrink)

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. (shrink)

Rational agents are supposed to maximize expected utility. But what are the options from which they choose? I outline some constraints on an adequate representation of an agent’s options. The options should, for example, contain no information of which the agent is unsure. But they should be sufficiently rich to distinguish all available acts from one another. These demands often come into conflict, so that there seems to be no adequate representation of the options at all. After reviewing existing proposals (...) for how to construe decision-theoretic options and finding them all wanting, I suggest that our model of rational agents should include a special domain of ‘virtual’ option propositions to serve as formal objects of deliberation and choice. (shrink)

To desire is to be in a particular state of mind. It is a state of mind familiar to everyone who has ever wanted to drink water or desired to know what has happened to an old friend, but its familiarity does not make it easy to give a theory of desire. Controversy immediately breaks out when asking whether wanting water and desiring knowledge are, at bottom, the same state of mind as others that seem somewhat similar: wishing never to (...) have been born, preferring mangoes to peaches, craving gin, having world conquest as one's goal, having a purpose in sneaking out to the shed, or being inclined to provoke just for the sake of provocation. These varied states of mind have all been grouped together under the heading of ‘pro attitudes’, but whether the pro attitudes are fundamentally one mental state or many is disputed. (shrink)

People often face preferential decisions under risk. To further our understanding of the cognitive processes underlying these preferential choices, two prominent cognitive models, decision field theory (DFT; Busemeyer & Townsend, 1993) and the proportional difference model (PD; González‐Vallejo, 2002), were rigorously tested against each other. In two consecutive experiments, the participants repeatedly had to choose between monetary gambles. The first experiment provided the reference to estimate the models’ free parameters. From these estimations, new gamble pairs were generated for the second (...) experiment such that the two models made maximally divergent predictions. In the first experiment, both models explained the data equally well. However, in the second generalization experiment, the participants’ choices were much closer to the predictions of DFT. The results indicate that the stochastic process assumed by DFT, in which evidence in favor of or against each option accumulates over time, described people’s choice behavior better than the trade‐offs between proportional differences assumed by PD. (shrink)

I examine the foundations of a just society using the lens of decision theory. The conception of just society is from an individual’s viewpoint: where would I rather live if I have an equal chance of being any individual? Three alternative designs for a just society are examined. These are: laissez-faire, maximin and social minimum. Two assumptions about human nature clarify the distinction among three societies. The first assumption is that a representative individual’s utility function is concave. The second assumption (...) recognizes that redistribution to achieve equality reduces total wealth. A rational individual would prefer a society where one is free to maximize one’s expected utility. A social minimum that includes both the provision of essential human needs and equality of opportunity (education, healthcare, access to capital) for a flourishing life emerges as a candidate solution for the basic structure of society. (shrink)

We focus on the dichotomous choice model, which goes back as far as Condorcet (1785; Essai sur l'application de l'analyse a la probabilité des décisions rendues a la pluralité des voix, Paris). A group of experts is required to select one of two alternatives, of which exactly one is regarded as correct. The alternatives may be related to a wide variety of areas. A decision rule translates the individual opinions of the members into a group decision. A decision rule is (...) optimal if it maximizes the probability of the group to make a correct choice. In this paper we assume the correctness probabilities of the experts to be independent random variables, selected from some given distribution. Moreover, the ranking of the members in the team is (at least partly) known. Thus, one can follow rules based on this ranking. The polar different rules are the expert and the majority rules. The probabilities of the two polar rules being optimal were compared in a series of papers. The main purpose of this paper is to outline the results, providing exact formulas or estimates for these probabilities. We consider a variety of distributions and show that for all of these distributions the asymptotic behaviour of the probabilities of the two polar rules follows the same patterns. (shrink)

We shall introduce in this paper a language whose formulas will be interpreted by games of imperfect information. Such games will be defined in the same way as the games for first-order formulas except that the players do not have complete information of the earlier course of the game. Some simple logical properties of these games will be stated together with the relation of such games of imperfect information to higher-order logic. Finally, a set of applications will be outlined.

Psychological studies have long demonstrated effects of expectations on judgment, whereby the provision of information, either implicitly or explicitly, prior to an experience or decision can exert a substantial influence on the observed behavior. This study extended these expectation effects to the domain of interactive economic decision-making. Prior to playing a commonly-used bargaining task, the Ultimatum Game, participants were primed to expect offers that would be either relatively fair or unfair. A third group played the Game without receiving any prior (...) information about expected offers. As predicted, these expectations had a large effect on decisions made by participants in the Ultimatum Game, with those with expectations of fairness rejecting significantly more unfair offers than those participants who expected low offers. Implications for models of fairness and equity are discussed. (shrink)

We propose a model of an agent’s probability and utility that is a compromise between Savage (The foundations of statistics, Wiley, 1954) and Jeffrey (The Logic of Decision, McGraw Hill, 1965). In Savage’s model the probability–utility pair is associated with preferences over acts which are assignments of consequences to states. The probability is defined on the state space, and the utility function on consequences. Jeffrey’s model has no consequences, and both probability and utility are defined on the same set of (...) propositions. The probability–utility pair is associated with a desirability relation on propositions. Like Savage we assume a set of consequences and a state space. However, we assume that states are comprehensive, that is, each state describes a consequence, as in Aumann (Econometrica 55:1–18, 1987). Like Jeffrey, we assume that the agent has a preference relation, which we call desirability, over events, which by definition involves uncertainty about consequences. For a given probability and utility of consequences, the desirability relation is presented by conditional expected utility, given an event. We axiomatically characterize desirability relations that are represented by a probability–utility pair. We characterize the family of all the probability–utility pairs that represent a given desirability relation. (shrink)

People with the kind of preferences that give rise to the St. Petersburg paradox are problematic---but not because there is anything wrong with infinite utilities. Rather, such people cannot assign the St. Petersburg gamble any value that any kind of outcome could possibly have. Their preferences also violate an infinitary generalization of Savage's Sure Thing Principle, which we call the *Countable Sure Thing Principle*, as well as an infinitary generalization of von Neumann and Morgenstern's Independence axiom, which we call *Countable (...) Independence*. In violating these principles, they display foibles like those of people who deviate from standard expected utility theory in more mundane cases: they choose dominated strategies, pay to avoid information, and reject expert advice. We precisely characterize the preference relations that satisfy Countable Independence in several equivalent ways: a structural constraint on preferences, a representation theorem, and the principle we began with, that every prospect has a value that some outcome could have. (shrink)

In this paper I study intentions of the form, that is, intentions with a we-content, and their role in interpersonal coordination. I focus on the notion of epistemic support for such intentions. Using tools from epistemic game theory and epistemic logic, I cast doubt on whether such support guarantees the other agents' conditional mediation in the achievement of such intentions, something that appears important if intentions with a we-content are to count as genuine intentions. I then formulate a stronger version (...) of epistemic support, one that does indeed ensure the required mediation, but I then argue that it rests on excessively strong informational conditions. In view of this I provide an alternative set of conditions that are jointly sufficient for coordination in games, and I argue that these conditions constitute a plausible alternative to the proposed notion of epistemic support. (shrink)

According to the orthodox view, it is impossible to know how different people's preferences compare in terms of strength and whether they are interpersonally comparable at all. Against the orthodox view, Donald Davidson (1986, 2004) argues that the interpersonal comparability of preferences is a necessary condition for the correct interpretation of other people's behaviour. In this paper I claim that, as originally stated, Davidson's argument does not succeed because it is vulnerable to several objections, including Barry Stroud's (1968) objection against (...) all transcendental arguments of a 'strong' kind. However, I argue that Davidson's strategy can still achieve results of anti-sceptical significance. If we reformulate Davidson's argument as a 'modest' transcendental argument and if we embrace an 'internal' account of epistemic justification, it is in fact possible to have at least justified beliefs about how different people's preferences compare in terms of strength and about their interpersonal comparability. (shrink)

According to a popular strategy amongst economists and philosophers, in order to solve the problem of interpersonal utility comparisons, we have to look at how ordinary people make such comparisons in everyday life. The most recent attempt to develop this strategy has been put forward by Goldman in his “Simulation and Interpersonal Utility” (Ethics 4:709–726, 1995). Goldman claims, first, that ordinary people make interpersonal comparisons by simulation and, second, that simulation is reliable for making interpersonal comparisons. In this paper, I (...) focus on Goldman’s latter claim. After updating Goldman’s account of how ordinary people make interpersonal comparisons in the light of Goldman’s newest formulation of his simulation theory of mental ascription (Goldman, Simulating Minds. Oxford University Press, Oxford, 2006), I develop and assess Goldman’s arguments in favour of the reliability of simulation for interpersonal comparisons. I argue that, under certain conditions, there may be room for a scientifically acceptable solution to the problem of interpersonal utility comparisons. (shrink)

That the rationality of individual people is ‘bounded’ – that is, finite in scope and representational reach, and constrained by the opportunity cost of time – cannot reasonably be controversial as an empirical matter. In this context, the paper addresses the question as to why, if economics is an empirical science, economists introduce bounds on the rationality of agents in their models only grudgingly and partially. The answer defended in the paper is that most economists are interested primarily in markets (...) and only secondarily in the dynamics of individual decisions – specifically, they are interested in these dynamics mainly insofar as they might systematically influence the most useful approaches to modeling interesting markets. In market contexts, bounds on rationality are typically generated by institutional and informational properties specific to the market in question, which arise and are sustained by structural dynamics that do not originate in or reduce to individuals' decisions or psychologic.. (shrink)

The rise of behavioral economics since the 1980s led to richer mutual influence between economic and psychological theory and experimentation. However, as behavioral economics has become increasingly integrated into the main stream in economics, and as psychology has remained damagingly methodologically conservative, this convergence has recently gone into reverse. At the same time, growing appreciation among economists of the limitations of atomistic individualism, along with advantages in econometric modeling flexibility by comparison with psychometrics, is leading economists to become more pluralistic (...) than psychologists about the ontology of behavioral causation and structures. This, combined with economists’ growing interest in network models, is drawing economists closer in theory and practice to sociologists who use quantitative or mixed methods. (shrink)

We conduct a standardized survey on risk preferences in 53 countries worldwide and estimate cumulative prospect theory parameters from the data. The parameter estimates show that significant differences on the cross-country level are to some extent robust and related to economic and cultural differences. In particular, a closer look on probability weighting underlines gender differences, economic effects, and cultural impact on probability weighting. The data set is a useful starting point for future research that investigates the impact of risk preferences (...) on the market level. (shrink)

Knowledge-first epistemology includes a knowledge norm of action: roughly, act only on what you know. This norm has been criticized, especially from the perspective of so-called standard decision theory. Mueller and Ross provide example decision problems which seem to show that acting properly cannot require knowledge. I argue that this conclusion depends on applying a particular decision theory which is ill-motivated in this context. Agents’ knowledge is often most plausibly formalized as an ambiguous epistemic state, and the theory of decision (...) under ambiguity is then the appropriate modeling tool. I show how to model agents as acting rationally on the basis of their knowledge according to such a theory. I conclude that the tension between the knowledge norm of action and formal decision theory is illusory; the knowledge-first paradigm should be used to actively select the decision-theoretical tools that can best capture the knowledge-based decisions in any given situation. (shrink)

There are two prominent viewpoints regarding the nature of rationality and how it should be evaluated in situations of interest: the traditional axiomatic approach and the newer ecological rationality. An obstacle to comparing and evaluating these seemingly opposite approaches is that they employ different language and formalisms, ask different questions, and are at different stages of development. I adapt a formal framework known as SCOP to address this problem by providing a comprehensive common framework in which both approaches may be (...) defined and compared. The main result is that the axiomatic and ecological approaches are in far greater agreement on fundamental issues than has been appreciated; this is supported by a pair of theorems to the effect that they will make accordant rationality judgements when forced to evaluate the same situation. I conclude that ecological rationality has some subtle advantages, but that we should move past the issues currently dominating the discussion of rationality. (shrink)

With concerns regarding climate change rising, companies and policy makers seek to understand the precursors to environmentally-friendly consumer choice. Decision modes are the qualitatively different psychological processes employed to arrive at decisions. Across six studies, the present project establishes (a) which decision modes are employed by consumers to decide between electricity plans that differ in environmental impact, and (b) how employed decision modes affect those choices. We demonstrate that consumers are most likely to use Calculation Modes when facing such choices. (...) Importantly, we find that Affect or Role Modes promote more environmentally-friendly choices, while Calculation Modes decrease environmentally-friendly choices. Experimentally promoting use of a Role Mode over a Calculation Mode increases selection of environmentally-friendly alternatives, and the relative degree of employing the Role Mode mediates this effect. Our findings provide insight into how decision mode usage can alter environmental decisions, and suggest mechanisms and tools for marketers and policy makers to influence consumer choice. (shrink)

Homo sociologicus and homo oeconomicus are, for different reasons, unsatisfactory models for the social sciences. A third model, called “rational model in the broad sense”, seems better endowed to cope with the many different expressions of rationality of the social agent. Some contributions by Weber, Durkheim and Marx are early examples of the application of this model of social explanation based on good subjective reasons. According to this model and to the evidence of cognitive anthropology, it is possible to reconcile (...) primitive thinking with the inferential principles of Western people. Lastly, cognitive psychology can contribute to the discovery of generalizations of reason-based choices that can strengthen the explanatory power of “rational model in the broad sense”. (shrink)

Interest in the foundations of the theory of choice under uncertainty was stimulated by applications of expected utility theory such as the Sandmo model of production under uncertainty. The development of generalized expected utility models raised the question of whether such models could be used in the analysis of applied problems such as those involving production under uncertainty. Finally, the revival of the state-contingent approach led to the recognition of a fundamental duality between choice problems and production problems.

Consider a simple game with n players. Let ψi be the Shapley–Shubik power index for player i. Then 1-ψi measures his powerlessness. We break down this powerlessness into two components – a `quixote index' Q i (which measures how much of a `quixote' i is), and a `follower index' F i (which measures how much of a `follower' he is). Formulae, properties, and axiomatizations for Q and F are given. Examples are also supplied.

Topics in Cognitive Science, Volume 14, Issue 3, Page 528-549, July 2022.

Topics in Cognitive Science, Volume 14, Issue 3, Page 451-466, July 2022.