Descriptive and Normative Implications of the Decision-Theory Postulates

MacCrimmon, Kenneth R.

doi:10.1007/978-1-349-15248-3_1

Cited by 142 publications

(77 citation statements)

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“…When faced with the choice of staking a prize on: (R,) drawing a red ball from the first urn, (R,) drawing a red ball from the second urn, (B,) drawing a black ball from the first urn, or (B,) drawing a black ball from the second urn, a majority of subjects strictly preferred (R,) over (R2) and strictly preferred (B,) over (B2).It is clear that there can exist no subjectively assigned probabilities p: (1 -p ) of drawing a red vs. black ball from the second urn, even 1/2 : 1/2, which can simultaneously generate both of these strict preferences. Similar behavior in this and related problems has been observed by Raiffa (1961), Becker and Brownson (1964), Slovic and Tversky (1974) and MacCrimmon and Larsson (1979).…”

Section: The Existence Of Subjective Probabilitiessupporting

confidence: 86%

“…in the direction of preferring c, and c4,l2 which again suggests that indifference curves fan out, as in the figure (Tversky, 1975;MacCrimmon and Larsson, 1979;Chew and Waller, 1986). In a variation on this approach, Kahneman and Tversky (1979) replaced the gains of $Xand $Y in the above gambles with losses of these magnitudes, and found a tendency to depart from expected utility in the direction of c2 and c,.…”

Section: 'Asmentioning

confidence: 67%

“…101-103 Although his own reaction was undoubtedly sincere, the hypothesis that individuals would invariably react in such a manner has not been sustained in direct empirical testing. In experiments where subjects were asked to respond to Allais-type problems and then presented with arguments both for and against the expected utility position, neither MacCrimmon (1968), Moskowitz (1974) nor Slovic and Tversky (1974) found predominant net swings toward the expected utility choices.…”

Section: Violations Of Linearity In the Probabilitiesmentioning

confidence: 99%

“…b , : asx+(1 -a ) P * * versus b,: a P + (1 -a ) P * * and b,: asx+ (1 -a ) P * versus b,: a P + (1 -a ) P * where 6, denotes the prospect which yields x with certainty, P involves outcomes both greater and less than x, and P * * stochastically dominates P Although the independence axiom clearly implies choices of either b, and b, (if 6, is preferred to P ) or else b, and b, (if P is preferred to ax), researchers have found a tendency for subjects to choose b, in the first pair and b, in the second (MacCrimmon, 1968;MacCrimmon and Larsson, 1979;Kahneman and Tversky, 1979;Chew and Waller, 1986). When the distributions 6,, P, P * and P * * are each over a common outcome set { x,, x,, x, ), the prospects b,, b,, b, and b, will again form a parallelogram in the ( p,, p,) triangle, and a choice of b, and b, again implies indifference curves which fan out, as in Figure 4b.…”

Section: Additional Evidence Of Fanning Outmentioning

confidence: 99%

See 3 more Smart Citations

Choice Under Uncertainty: Problems Solved and Unsolved

Machina

1992

Foundations of Insurance Economics

274

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Section: The Existence Of Subjective Probabilitiessupporting

confidence: 86%

Section: 'Asmentioning

confidence: 67%

Section: Violations Of Linearity In the Probabilitiesmentioning

confidence: 99%

Section: Additional Evidence Of Fanning Outmentioning

confidence: 99%

See 2 more Smart Citations

Choice Under Uncertainty: Problems Solved and Unsolved

Machina

1992

Foundations of Insurance Economics

274

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“…Evidence emerged that people systematically violated EU theory (Allais, 1953;Ellsberg, 1961;MacCrimmon, 1968;Mosteller & Nogee, 1951, Preston & Baratta, 1948, and this evidence has accumulated in the subsequent decades (see Camerer, 1995;Edwards, 1968;Kahneman & Tversky, 2000). Although specific violations of EU, including their normative status, are still under debate (Allais, 1979;Hogarth & Reder, 1986), there is widespread consensus among experimental researchers that not all of the violations can be explained away.…”

Section: Europe Pmc Funders Author Manuscriptsmentioning

confidence: 99%

The Priority Heuristic: Making Choices Without Trade-offs

Brandstätter¹,

Gigerenzer²,

Hertwig³

2011

Heuristics

100

182

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Bernoulli's framework of expected utility serves as a model for various psychological processes, including motivation, moral sense, attitudes, and decision making. To account for evidence at variance with expected utility, we generalize the framework of fast and frugal heuristics from inferences to preferences. The priority heuristic predicts (i) Allais' paradox, (ii) risk aversion for gains if probabilities are high, (iii) risk seeking for gains if probabilities are low (lottery tickets), (iv) risk aversion for losses if probabilities are low (buying insurance), (v) risk seeking for losses if probabilities are high, (vi) certainty effect, (vii) possibility effect, and (viii) intransitivities. We test how accurately the heuristic predicts people's choices, compared to previously proposed heuristics and three modifications of expected utility theory: security-potential/aspiration theory, transfer-of-attention-exchange model, and cumulative prospect theory.Conventional wisdom tells us that making decisions becomes difficult whenever multiple priorities, appetites, goals, values, or simply the attributes of the alternative options are in conflict. Should one undergo a medical treatment that has some chance of curing a lifethreatening illness but comes with the risk of debilitating side effects? Should one report a crime committed by a friend? Should one buy an expensive, high-quality camera or an inexpensive, low-quality camera? How do people resolve conflicts, ranging from the prosaic to the profound?The common denominator of many theories of human behavior is the premise that conflicts are mastered by making trade-offs. Since the Enlightenment, it has been believed that weighting and summing are the processes by which such trade-offs can be made in a rational way. Numerous theories of human behavior-including expected value theory, expected utility theory, prospect theory, Benjamin Franklin's moral algebra, theories of moral sense such as utilitarianism and consequentionalism (Gigerenzer, 2004), theories of risk taking (e.g., Wigfield & Eccles, 1992), motivational theories of achievement (Atkinson, 1957) and work behavior (e.g., Vroom, 1964), theories of social learning (Rotter, 1954), theories of attitude formation (e.g., Fishbein & Ajzen, 1975), and theories of health behavior (e.g., Becker, 1974; for a review see Heckhausen, 1991)-rest on these two processes. Take how expected utility theory would account for the choice between two investment plans as an example. The reasons for choosing are often negatively correlated with one another. High returns go with low probabilities, and low returns go with high probabilities. According to a common argument, negative correlations between reasons cause people to experience conflict, leading them to make trade-offs (Shanteau & Thomas, 2000). Europe PMC Funders Author ManuscriptsEurope PMC Funders Author Manuscripts utility, the trade-off between investment plans is performed by weighting the utility of the respective monetary outcomes by their probabilities and...

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Belief and Preference in Decision Under Uncertainty

Fox

See

2003

Thinking: Psychological Perspectives on Reasoning, Judgment and Decision Making

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Most decisions in life are gambles. Should I speed up or slow down as I approach the yellow traffic light ahead? Should I invest in the stock market or in treasury bills? Should I undergo surgery or radiation therapy to treat my tumor? From mundane choices rendered with scarcely a moment's reflection to urgent decisions founded on careful deliberation, we seldom know in advance and with certainty what the consequences of our choices will be. Thus, most decisions require not only an assessment of the attractiveness of potential consequences, but also some appraisal of their likelihood of occurrence.Virtually all decision theorists agree that values and beliefs jointly influence willingness to act under uncertainty. However, there is considerable disagreement about how to measure values and beliefs, and how to model their influence on decisions. Our purpose in this chapter is to bring into sharper focus the role of values and beliefs in decision under uncertainty and contrast some recent developments in the descriptive modeling of choice under uncertainty with the classical normative model. The Classical Theory and the Sure-Thing PrincipleThe primitives of most decision theories are acts, states, and consequences (Savage, 1954; for an alternative approach, see Luce, 2000). An act is an action or option that yields one * The view of decision making under uncertainty outlined in this chapter was heavily influenced by the late Amos Tversky. Of course, any errors or deficiencies of the present work are entirely the responsibility of the authors. We thank

show abstract

Descriptive and Normative Implications of the Decision-Theory Postulates

Cited by 142 publications

References 1 publication

Choice Under Uncertainty: Problems Solved and Unsolved

Choice Under Uncertainty: Problems Solved and Unsolved

The Priority Heuristic: Making Choices Without Trade-offs

Belief and Preference in Decision Under Uncertainty

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