We provide a critical assessment of the ambiguity aversion literature, which we characterize in terms of the view that Ellsberg choices are rational responses to ambiguity, to be explained by relaxing Savage's Sure-Thing principle and adding an ambiguity-aversion postulate. First, admitting Ellsberg choices as rational leads to behaviour, such as sensitivity to irrelevant sunk cost, or aversion to information, which most economists would consider absurd or irrational. Second, we argue that the mathematical objects referred to as “beliefs” in the ambiguity (...) aversion literature have little to do with how an economist or game theorist understands and uses the concept. This is because of the lack of a useful notion of updating. Third, the anomaly of the Ellsberg choices can be explained simply and without tampering with the foundations of choice theory. These choices can arise when decision makers form heuristics that serve them well in real-life situations where odds are manipulable, and misapply them to experimental settings. (shrink)

Challenging, with several powerful arguments, some of our deepest beliefs about rationality, morality, and personal identity, Parfit claims that we have a false view about our own nature. It is often rational to act against our own best interersts, he argues, and most of us have moral views that are self-defeating. We often act wrongly, although we know there will be no one with serious grounds for complaint, and when we consider future generations it is very hard to avoid conclusions (...) that most of us will find very disturbing. (shrink)

What value should we put on our chances of obtaining a good? This paper argues that, contrary to the widely accepted theory of von Neumann and Morgenstern, the value of a chance of some good G may be a nonlinear function of the value of G. In particular, chances may have diminishing marginal utility, a property that is termed chance uncertainty aversion. The hypothesis that agents are averse to uncertainy about chances explains a pattern of preferences often observed in the (...) Ellsberg paradox. While these preferences have typically been taken to refute Bayesian decision theory, it is shown that chance risk aversion is perfectly compatible with it. (shrink)

Many have claimed that unspecific evidence sometimes demands unsharp, indeterminate, imprecise, vague, or interval-valued probabilities. Against this, a variant of the diachronic Dutch Book argument shows that perfectly rational agents always have perfectly sharp probabilities.

This is the classic work upon which modern-day game theory is based. What began as a modest proposal that a mathematician and an economist write a short paper together blossomed, when Princeton University Press published Theory of Games and Economic Behavior. In it, John von Neumann and Oskar Morgenstern conceived a groundbreaking mathematical theory of economic and social organization, based on a theory of games of strategy. Not only would this revolutionize economics, but the entirely new field of scientific inquiry (...) it yielded--game theory--has since been widely used to analyze a host of real-world phenomena from arms races to optimal policy choices of presidential candidates, from vaccination policy to major league baseball salary negotiations. And it is today established throughout both the social sciences and a wide range of other sciences. (shrink)

When making decisions, people naturally face uncertainty about the potential consequences of their actions due in part to limits in their capacity to represent, evaluate or deliberate. Nonetheless, they aim to make the best decisions possible. In Decision Theory with a Human Face, Richard Bradley develops new theories of agency and rational decision-making, offering guidance on how 'real' agents who are aware of their bounds should represent the uncertainty they face, how they should revise their opinions as a result of (...) experience and how they should make decisions when lacking full awareness of, or precise opinions on relevant contingencies. He engages with the strengths and flaws of Bayesian reasoning, and presents clear and comprehensive explorations of key issues in decision theory, from belief and desire to semantics and learning. His book draws on philosophy, economics, decision science and psychology, and will appeal to readers in all of these disciplines. (shrink)

_Conjectures and Refutations_ is one of Karl Popper's most wide-ranging and popular works, notable not only for its acute insight into the way scientific knowledge grows, but also for applying those insights to politics and to history. It provides one of the clearest and most accessible statements of the fundamental idea that guided his work: not only our knowledge, but our aims and our standards, grow through an unending process of trial and error.

The way in which knowledge progresses, and especially our scientific knowledge, is by unjustified anticipations, by guesses, by tentative solutions to our problems, by conjectures. These conjectures are controlled by criticism: that is, by attempted refutations, which include severely critical tests. They may survive these tests; but they can never be positively justified: they can neither be established as certainly true nor even as 'probable'. Criticism of our conjectures is of decisive importance: by bringing out our mistakes it makes us (...) understand the difficulties of the problems which we try to solve. This is how we become better acquainted with our problem, and able to propose more mature solutions: the very refutation of a theory - that is, of a tentative solution to our problem - is always a step forward that takes us nearer the truth. And this is how we can learn from our mistakes. As we learn from our mistakes our knowledge grows, even though we may never know - that is, know for certain. Since our knowledge can grow, there can be no reason here for despair of reason. And since we can never know for certain, the can be no authority here for any claim to authority, for conceit over our knowledge, or for smugness. The essays and lectures of which this book is composed apply this thesis to many topics, ranging from problems of the philosophy and history of the physical and social sciences to historical and political problems. (shrink)

The paper presents a further articulation and defence of the view on prediction and accommodation that I have proposed earlier. It operates by analysing two accounts of the issue-by Patrick Maher and by Marc Lange-that, at least at first sight, appear to be rivals to my own. Maher claims that the time-order of theory and evidence may be important in terms of degree of confirmation, while that claim is explicitly denied in my account. I argue, however, that when his account (...) is analysed, Maher reveals no scientifically significant way in which the time-order counts, and that indeed his view is in the end best regarded as a less than optimally formulated version of my own. Lange has also responded to Maher by arguing that the apparent relevance of temporal considerations is merely apparent: what is really involved, according to Lange, is whether or not a hypothesis constitutes an "arbitrary conjunction." I argue that Lange's suggestion fails: the correct analysis of his and Maher's examples is that provided by my account. (shrink)

The paper presents a further articulation and defence of the view on prediction and accommodation that I have proposed earlier. It operates by analysing two accounts of the issue-by Patrick Maher and by Marc Lange-that, at least at first sight, appear to be rivals to my own. Maher claims that the time-order of theory and evidence may be important in terms of degree of confirmation, while that claim is explicitly denied in my account. I argue, however, that when his account (...) is analysed, Maher reveals no scientifically significant way in which the time-order counts, and that indeed his view is in the end best regarded as a less than optimally formulated version of my own. Lange has also responded to Maher by arguing that the apparent relevance of temporal considerations is merely apparent: what is really involved, according to Lange, is whether or not a hypothesis constitutes an "arbitrary conjunction." I argue that Lange's suggestion fails: the correct analysis of his and Maher's examples is that provided by my account. (shrink)

Revealed preference approaches to modelling agents’ choices face two seemingly devastating explanatory objections. The no self-explanation objection imputes a problematic explanatory circularity to revealed preference approaches, while the causal explanation objection argues that, all things equal, a scientific theory should provide causal explanations, but revealed preference approaches decidedly do not. Both objections assume a view of explanation, the constraint-based view, that the revealed preference theorist ought to reject. Instead, the revealed preference theorist should adopt a unificationist account of explanation, allowing (...) her to escape the two explanatory problems discussed in this paper. (shrink)

Judgementalism is an interpretation of normative decision theory according to which preferences are all-things-considered judgements of relative desirability, and the only attitudes that rationally constrain choice. The defence of judgementalism we find in Richard Bradley’s Decision Theory with a Human Face relies on a kind of internalism about the requirements of rationality, according to which they supervene on an agent’s mental states, and in particular those she can reason from. I argue that even if we grant such internalism, attitudes other (...) than preferences in the judgementalist sense rationally constrain choice. This ultimately supports a different interpretation of preference. (shrink)

According to the orthodox treatment of risk preferences in decision theory, they are to be explained in terms of the agent's desires about concrete outcomes. The orthodoxy has been criticised both for conflating two types of attitudes and for committing agents to attitudes that do not seem rationally required. To avoid these problems, it has been suggested that an agent's attitudes to risk should be captured by a risk function that is independent of her utility and probability functions. The main (...) problem with that approach is that it suggests that attitudes to risk are wholly distinct from people's (non-instrumental) desires. To overcome this problem, we develop a framework where an agent's utility function is defined over chance propositions (i.e., propositions describing objective probability distributions) as well as ordinary (non-chance) ones, and argue that one should explain different risk attitudes in terms of different forms of the utility function over such propositions. (shrink)

Chance Neutrality is the thesis that, conditional on some proposition being true, its chance of being true should be a matter of practical indifference. The aim of this article is to examine whether Chance Neutrality is a requirement of rationality. We prove that given Chance Neutrality, the Principal Principle entails a thesis called Linearity; the centerpiece of von Neumann and Morgenstern’s expected utility theory. With this in mind, we argue that the Principal Principle is a requirement of practical rationality but (...) that Linearity is not and, hence, that Chance Neutrality is not rationally required. (shrink)

:This paper explores the contrast between mentalistic and behaviouristic interpretations of decision theory. The former regards credences and utilities as psychologically real, while the latter regards them as mere representations of an agent's preferences. Philosophers typically adopt the former interpretation, economists the latter. It is argued that the mentalistic interpretation is preferable if our aim is to use decision theory for descriptive purposes, but if our aim is normative then the behaviouristic interpretation cannot be dispensed with.

Should we insist on prediction, i.e. on correctly forecasting the future? Or can we rest content with accommodation, i.e. empirical success only with respect to the past? I apply general considerations about this issue to the case of economics. In particular, I examine various ways in which mere accommodation can be sufficient, in order to see whether those ways apply to economics. Two conclusions result. First, an entanglement thesis: the need for prediction is entangled with the methodological role of orthodox (...) economic theory. Second, a conditional predictivism: if we are not committed to orthodox economic theory, then we should demand prediction rather than accommodation – against most current practice. (shrink)

Evidence for a hypothesis typically confirms the hypothesis more if the evidence was predicted than if it was accommodated. Or so I argued in previous papers, where I also developed an analysis of why this should be so. But this was all a mistake if Howson and Franklin (1991) are to be believed. In this paper, I show why they are not to be believed. I also identify a grain of truth that may have been dimly grasped by those Bayesians (...) who deny the confirmatory value of prediction. (shrink)

The experimental approach in economics is a driving force behind some of the most exciting developments in the field. The 'experimental revolution' was based on a series of bold philosophical premises which have remained until now mostly unexplored. This book provides the first comprehensive analysis and critical discussion of the methodology of experimental economics, written by a philosopher of science with expertise in the field. It outlines the fundamental principles of experimental inference in order to investigate their power, scope and (...) limitations. The author demonstrates that experimental economists have a lot to gain by discussing openly the philosophical principles that guide their work, and that philosophers of science have a lot to learn from their ingenious techniques devised by experimenters in order to tackle difficult scientific problems. (shrink)

We introduce a “reason-based” framework for explaining and predicting individual choices. It captures the idea that a decision-maker focuses on some but not all properties of the options and chooses an option whose motivationally salient properties he/she most prefers. Reason-based explanations allow us to distinguish between two kinds of context-dependent choice: the motivationally salient properties may (i) vary across choice contexts, and (ii) include not only “intrinsic” properties of the options, but also “context-related” properties. Our framework can accommodate boundedly rational (...) and sophisticatedly rational choice. Since properties can be recombined in new ways, it also offers resources for predicting choices in unobserved contexts. (shrink)

Behaviourism is the view that preferences, beliefs, and other mental states in social-scientific theories are nothing but constructs re-describing people's behaviour. Mentalism is the view that they capture real phenomena, on a par with the unobservables in science, such as electrons and electromagnetic fields. While behaviourism has gone out of fashion in psychology, it remains influential in economics, especially in ‘revealed preference’ theory. We defend mentalism in economics, construed as a positive science, and show that it fits best scientific practice. (...) We distinguish mentalism from, and reject, the radical neuroeconomic view that behaviour should be explained in terms of brain processes, as distinct from mental states. (shrink)

Newcomb's problem and similar cases show the need to incorporate causal distinctions into the theory of rational decision; the usual noncausal decision theory, though simpler, does not always give the right answers. I give my own version of causal decision theory, compare it with versions offered by several other authors, and suggest that the versions have more in common than meets the eye.

has offered a lovely example to motivate the intuition that a successful prediction has a kind of confirmatory significance that an accommodation lacks. This paper scrutinizes Maher's example. It argues that once the example is tweaked, the intuitive difference there between prediction and accommodation disappears. This suggests that the apparent superiority of prediction to accommodation is actually a side effect of an important difference between the hypotheses that tend to arise in each case.

This note is a generalization and improved interpretation of the main result of Karni and Schmeidler. A decision-maker is supposed to possess a preference relation on acts and another preference relation on state-prize lotteries, both of which are assumed to satisfy the von Neumann–Morgenstern axioms. In addition, the two preference relations restricted to a state of nature are assumed to agree. We show that these axioms are necessary and sufficient for the existence of subjective expected utility over acts with state-dependent (...) utility functions and a subjective probability measure. This subjective probability measure is unique when conditioned on the set of states of nature in which not all the prizes are equally desirable. (shrink)

In The Logic of Decision Richard Jeffrey defends a version of expected utility theory that advises agents to choose acts with an eye to securing evidence for thinking that desirable results will ensue. Proponents of "causal" decision theory have argued that Jeffrey's account is inadequate because it fails to properly discriminate the causal features of acts from their merely evidential properties. Jeffrey's approach has also been criticized on the grounds that it makes it impossible to extract a unique probability/utility representation (...) from a sufficiently rich system of preferences (given a zero and unit for measuring utility). The existence of these problems should not blind us to the fact that Jeffrey's system has advantages that no other decision theory can match: it can be underwritten by a particularly compelling representation theorem proved by Ethan Bolker; and it has a property called partition invariance that every reasonable theory of rational choice must possess. I shall argue that the non-uniqueness problem can be finessed, and that it is impossible to adequately formulate causal decision theory, or any other, without using Jeffrey's theory as one's basic analysis of rational desire. (shrink)

This book defends the view that any adequate account of rational decision making must take a decision maker's beliefs about causal relations into account. The early chapters of the book introduce the non-specialist to the rudiments of expected utility theory. The major technical advance offered by the book is a 'representation theorem' that shows that both causal decision theory and its main rival, Richard Jeffrey's logic of decision, are both instances of a more general conditional decision theory. The book solves (...) a long-standing problem for Jeffrey's theory by showing for the first time how to obtain a unique utility and probability representation for preferences and judgements of comparative likelihood. The book also contains a major new discussion of what it means to suppose that some event occurs or that some proposition is true. The most complete and robust defence of causal decision theory available. (shrink)

"[This book] proposes new foundations for the Bayesian principle of rational action, and goes on to develop a new logic of desirability and probabtility."—Frederic Schick, _Journal of Philosophy_.

In The Enterprise of Knowledge, I proposed a general theory of rational choice which I intended as a characterization of a prescriptive theory of ideal rationality. A cardinal tenet of this theory is that assessments of expected value or expected utility in the Bayesian sense may not be representable by a numerical indicator or indeed induce an ordering of feasible options in a context of deliberation. My reasons for taking this position are related to my commitment to the inquiry-oriented approach (...) to human knowledge and valuation favored by the American pragmatists, Charles Peirce and John Dewey. A feature of any acceptable view of inquiry ought to be that during an inquiry points under dispute ought to be kept in suspense pending resolution through inquiry. (shrink)

Many believe that the rational evaluation of actions depends on the rational evaluation of even basic desires. Hume, though, viewed desires as "original existences" which cannot be contrary to either truth or reason. Contemporary critics of Hume, including Norman, Brandt and Parfit, have sought a basis for the rational evaluation of desires that would deny some basic desires reason-giving force. I side with Hume against these modern critics. Hume's concept of rational evaluation is admittedly too narrow; even basic desires are, (...) despite their nonrepresentational nature, subject to rational evaluation. But this evaluation is not relevant to their tendency to generate reasons for action, and does not undermine the spirit of the Humean view of rational action. (shrink)

The notion of ‘revealed preference’ is unclear and should be abandoned. Defenders of the theory of revealed preference have misinterpreted legitimate concerns about the testability of economics as the demand that economists eschew reference to (unobservable) subjective states. As attempts to apply revealed-preference theory to game theory illustrate with particular vividness, this demand is mistaken.

Preferences are the central notion in mainstream economic theory, yet economists say little about what preferences are. This article argues that preferences in mainstream positive economics are comparative evaluations with respect to everything relevant to value or choice, and it argues against three mistaken views of preferences: (1) that they are matters of taste, concerning which rational assessment is inappropriate, (2) that preferences coincide with judgments of expected self-interested benefit, and (3) that preferences can be defined in terms of choices.

Preferences are the central notion in mainstream economic theory, yet economists say little about what preferences are. This article argues that preferences in mainstream positive economics are comparative evaluations with respect to everything relevant to value or choice, and it argues against three mistaken views of preferences: (1) that they are matters of taste, concerning which rational assessment is inappropriate, (2) that preferences coincide with judgments of expected self-interested benefit, and (3) that preferences can be defined in terms of choices.

(No abstract is available for this citation).

The purpose of this paper is to examine the normative interpretation of the fast-and-frugal research program and in particular to contrast it with the normative reading of rational choice theory and behavioral economics. The ecological rationality of fast-and-frugal heuristics is admittedly a form of normative naturalism – it derives what agents “ought” to do from that which “is” ecologically rational – and the paper will examine how this differs from the normative rationality associated with rational choice theory. I will also (...) attempt to assess the relative adequacy of normative ecological rationality. (shrink)

This paper examines methodological issues raised by revealed preference theory in economics: particularly contemporary revealed preference theory. The paper has three goals. First, to make the case that revealed preference theory is a broad research program in choice theory—not a single theory—and understanding this diversity is essential to any methodological analysis of the program. Second, to explore some of the existing criticisms of revealed preference theory in a way that emphasizes how the effectiveness of the critique depends on the particular (...) version of revealed preference under consideration. Finally, three additional criticisms are presented that are aimed specifically at contemporary revealed preference theory. (shrink)

A conceptual analysis of falsificationism is performed, in which the central falsificationist thesis is divided into several components. Furthermore, an empirical study of falsification in science is reported, based on the 70 scientific contributions that were published as articles in Nature in 2000. Only one of these articles conformed to the falsificationist recipe for successful science, namely the falsification of a hypothesis that is more accessible to falsification than to verification. It is argued that falsificationism relies on an incorrect view (...) of the nature of scientific inquiry and that it is, therefore, not a tenable research methodology. (shrink)

Expected-utility theory has been a popular and influential theory in philosophy, law, and the social sciences. While its original developers, von Neumann and Morgenstern, presented it as a purely predictive theory useful to the practitioners of economic science, many subsequent theorists, particularly those outside of economics, have come to endorse EU theory as providing us with a representation of reason. But precisely in what sense does EU theory portray reason? And does it do so successfully? There are two strikingly different (...) answers to these questions in the literature. On the one hand, there is the view of people such as David Gauthier that EU theory is an implementation of the idea that reason's only role is instrumental. On the other hand, there is the view suggested by Leonard Savage that the theory is a “formal” and noninstrumental characterization of our reasoning process. (shrink)

Recent debates on the nature of preferences in economics have typically assumed that they are to be interpreted either as behavioural regularities or as mental states. In this paper I challenge this dichotomy and argue that neither interpretation is consistent with scientific practice in choice theory and behavioural economics. Preferences are belief-dependent dispositions with a multiply realizable causal basis, which explains why economists are reluctant to make a commitment about their interpretation.

This note argues that, under some circumstances, it is more rational not to behave in accordance with a Bayesian prior than to do so. The starting point is that in the absence of information, choosing a prior is arbitrary. If the prior is to have meaningful implications, it is more rational to admit that one does not have sufficient information to generate a prior than to pretend that one does. This suggests a view of rationality that requires a compromise between (...) internal coherence and justification, similarly to compromises that appear in moral dilemmas. Finally, it is argued that Savage's axioms are more compelling when applied to a naturally given state space than to an analytically constructed one; in the latter case, it may be more rational to violate the axioms than to be Bayesian. (shrink)

In traditional decision theory, utility is regarded as a mathematical representation of preferences to be inferred from agents hedonic experiences. Some go as far as to contend that utility is literally computed by specific neural areas and urge economists to complement or substitute their notion of utility with some neuro-psychological construct. In this paper, I distinguish three notions of utility that are frequently mentioned in debates about decision theory and examine some critical issues regarding their definition and measurability. Moreover, I (...) provide various empirical and conceptual reasons to doubt that economists should base decision theoretic analyses on some neuro-psychological notion of utility. (shrink)

In recent years, several authors have reconstructed the relationship between 20th-century economic theory and neuro-psychological research in terms of a three-stage narrative of initial unity, increasing separation, and ongoing reunification. In this article, I draw on major developments in economic theory and neuro-psychological research to provide a descriptive and normative critique of this reconstruction. Moreover, I put forward a reconstruction of the relationship between economics and neuro-psychology that, I claim, better fits both the available empirical evidence and the methodological foundations (...) of these disciplines. In doing so, I argue that recent calls to develop a unified interdisciplinary framework for modeling choice are premised on disputable presuppositions concerning both the domain of economic theory and the relationship between this theory’s axiomatic foundations and empirical findings about the neuro-psychological substrates of choice. (shrink)

In recent years, several authors have called to ground descriptive and normative decision theory on neuro-psychological measures of utility. In this paper, I combine insights from the best available neuro-psychological findings, leading philosophical conceptions of welfare and contemporary decision theory to rebut these prominent calls. I argue for two claims of general interest to philosophers, choice modellers and policy makers. First, severe conceptual, epistemic and evidential problems plague ongoing attempts to develop accurate and reliable neuro-psychological measures of utility. And second, (...) even if these problems are solved, neuro-psychological measures of utility lack the potential to inform welfare analyses and policy evaluations. (shrink)

The critics of rational choice theory (RCT) frequently build on the contrast between so-called thick and thin applications of RCT to argue that thin RCT lacks the potential to explain the choices of real-world agents. In this paper, I draw on often-cited RCT applications in several decision sciences to demonstrate that despite this prominent critique there are at least two different senses in which thin RCT can explain real-world agents’ choices. I then defend this thesis against the most influential objections (...) put forward by the critics of RCT. In doing so, I explicate the implications of my thesis for the ongoing philosophical debate concerning the explanatory potential of RCT and the comparative merits of widely endorsed accounts of explanation. (shrink)

In general, the technical apparatus of decision theory is well developed. It has loads of theorems, and they can be proved from axioms. Many of the theorems are interesting, and useful both from a philosophical and a practical perspective. But decision theory does not have a well agreed upon interpretation. Its technical terms, in particular, ‘utility’ and ‘preference’ do not have a single clear and uncontroversial meaning. How to interpret these terms depends, of course, on what purposes in pursuit of (...) which one wants to put decision theory to use. One might want to use it as a model of economic decision-making, in order to predict the behavior of corporations or of the stock market. In that case, it might be useful to interpret the technical term ‘utility’ as meaning money profit. Decision theory would then be an empirical theory. I want to look into the question of what ‘utility’ could mean, if we want decision theory to function as a theory of practical rationality. I want to know whether it makes good sense to think of practical rationality as fully or even partly accounted for by decision theory. I shall lay my cards on the table: I hope it does make good sense to think of it that way. For, I think, if Humeans are right about practical rationality, then decision theory must play a very large part in their account. And I think Humeanism has very strong attractions. (shrink)