The Independence Postulate,Hypothetical and Called-off Acts: a further reply to Rabinowicz

The Independence postulate links current preferences between called-off acts with current preferences between constant acts. Under the assumption that the chance-events used in compound von Neumann-Morgenstern lotteries are value-neutral, current preferences between these constant acts are linked to current preferences between hypothetical acts, conditioned by those chance events. Under an assumption of stability of preferences over time, current preferences between these hypothetical acts are linked to future preferences between what are then and there constant acts. Here, I show that a failure of Independence with respect to current preferences leads to an inconsistency in sequential decisions. Two called-off acts are constructed such that each is admissible in the same sequential decision and yet one is strictly preferred to the other. This responds to a question regarding admissibility posed by Rabinowicz ([2000] Preference stability and substitution of indifferents: A rejoinder to Seidenfeld, Theory and Decision 48: 311–318 [this issue]).     

Discount rates,social judgments,individuals’ risk preferences,and uncertainty

The choice of the proper discount rate is important in the analysis of projects whose costs and benefits extend into the future, a particularly striking feature of policies directed at climate change. Much of the literature, including prominent work by Arrow et al. (1996), Stern (2007, 2008), and Dasgupta (2008), employs a reduced-form approach that conflates social value judgments and individuals’ risk preferences, the latter raising an empirical question about choices under uncertainty rather than a matter for ethical reflection. This article offers a simple, explicit decomposition that clarifies the distinction, reveals unappreciated difficulties with the reduced-form approach, and relates them to the literature. In addition, it explores how significant uncertainty about future consumption, another central factor in climate policy assessment, raises further complications regarding the relationship between social judgments and individuals’ risk preferences.     

Mixture of Maximal Quasi Orders: a new Approach to Preference Modelling

Normative theories suggest that inconsistencies be pointed out to the Decision Maker who is thus given the chance to modify his/her judgments. In this paper, we suggest that the inconsistencies problem be transferred from the Decision Maker to the Analyst. With the Mixture of Maximal Quasi Orders, rather than pointing out incoherences for the Decision Maker to change, these inconsistencies may be used as new source of information to model his/her preferences.     

Boundedly rational expected utility theory

We build a satisficing model of choice under risk which embeds Expected Utility Theory (EUT) into a boundedly rational deliberation process. The decision maker accumulates evidence for and against alternative options by repeatedly sampling from her underlying set of EU preferences until the evidence favouring one option satisfies her desired level of confidence. Despite its EUT core, the model produces patterns of behaviour that violate standard EUT axioms, while at the same time capturing systematic relationships between choice probabilities, response times and confidence judgments, which are beyond the scope of theories that do not take deliberation into account.

     

Gender,risk and stereotypes

This paper reports results from an economic experiment where respondents are asked to make choices between risky outcomes for themselves and others. We investigate whether subjects’ own risk preferences and gender stereotypes are reflected in the predictions they make for the risk preferences of others and the way this occurs. When predicting other people’s risk preferences, the respondents tend to use a combination of their own risk preferences and stereotypes. Moreover, when making risky choices for others, the respondents generally use a combination of their own risk preferences and their average predicted risk preference of the targeted group.

Risk and time preferences of entrepreneurs: evidence from a Danish field experiment

To understand how small business entrepreneurs respond to government policy one has to know their risk and time preferences. Are they risk averse, or have high discount rates, such that they are hard to motivate? We have conducted a set of field experiments in Denmark that will allow a direct characterization of small business entrepreneurs in terms of these traits. We build on experimental tasks that are well established in the literature. The results do not suggest that small business entrepreneurs are more or less risk averse than the general population under the assumption of Expected Utility Theory. However, we generally find an S-shaped probability weighting function for both small business entrepreneurs and non-entrepreneurs, with entrepreneurs being more optimistic about the chance of occurrence for the best outcome in lotteries with real monetary outcomes. The results also point to a significant difference in individual discount rates between entrepreneurs and non-entrepreneurs: entrepreneurs are willing to wait longer for certain rewards than the general population.     

A Rule For Updating Ambiguous Beliefs

When preferences are such that there is no unique additive prior, the issue of which updating rule to use is of extreme importance. This paper presents an axiomatization of the rule which requires updating of all the priors by Bayes rule. The decision maker has conditional preferences over acts. It is assumed that preferences over acts conditional on event E happening, do not depend on lotteries received on E ^c, obey axioms which lead to maxmin expected utility representation with multiple priors, and have common induced preferences over lotteries. The paper shows that when all priors give positive probability to an event E, a certain coherence property between conditional and unconditional preferences is satisfied if and only if the set of subjective probability measures considered by the agent given E is obtained by updating all subjective prior probability measures using Bayes rule.     

Signed orders in linear and nonlinear utility theory

Self-reflecting signed orders on a set A and its anti-set A ^* were introduced previously as a way to account for negative as well as positive feelings about the inclusion of items in A in potential subsets of choice. The present paper extends the notion of signed orders to lotteries on A A ^*, describes reflection axioms for the lottery context, and shows how these axioms simplify utility representations for preference between lotteries. The simplified representations are then used to guide procedures for extending preferences from A A ^* and its lotteries to preferences between subsets of items.     

The Precautionary Principle in Context: U.S. and E.U. Scientists' Prescriptions for Policy in the Face of Uncertainty*

Objective. Our objective is to explain how scientists interpret less‐than‐certain scientific findings to inform policymakers' choices on controversial science policy issues. We focus on two particularly difficult policy cases concerning global climate change and low‐dose radiation protection. Methods. Our method is to analyze data from a unique multination survey of scientists to analyze the ways their views about what is scientifically correct are translated into judgments about appropriate policy. The surveys asked scientists, randomly drawn from U.S. and E.U. subscribers to the journal Science, to indicate the “most likely” relationships between greenhouse gas emissions and average global temperatures and between radiation dose and incidence of cancer in humans. Follow‐up questions asked for their judgments about appropriate policy targets for reductions in greenhouse gas emission and safety standards for radiation exposure. The data permit analysis of the relationships between scientific certainty and policy judgments in these two cases. Results. Our results shed light on when and how scientists reach precautionary policy conclusions, demonstrating that scientists' application of precaution is dependent on context. In the case of radiation protection, greater certainty is associated with less precaution. But with respect climate change, we found the opposite relationship. Conclusions. We conclude with a discussion of the implications for the role of scientists, and scientific advice, in the policy process.     

Common genetic effects on risk-taking preferences and choices

Although prior research has shown that risk-taking preferences and choices are correlated across many domains, there is a dearth of research investigating whether these correlations are primarily the result of genetic or environmental factors. We examine the extent to which common genetic factors account for the association between general risk-taking preferences and domain-specific risk-taking preferences, and between general risk-taking preferences and risk taking choices in financial investments, stock market participation and business formation. Using data from 1898 monozygotic (MZ) and 1344 same-sex dizygotic (DZ) twins, we find that general risk-taking shares a common genetic component with domain-specific risk-taking preferences and risk-taking choices.

     

Substance use and decision‐making in adolescent best friendship dyads: The role of popularity

In adolescent best friendship dyads, we examined: (a) similarity in substance use and decision‐making; (b) associations between participants' decision‐making and their own and best friend's substance use, (c) the influence of relative popularity within the dyad on these associations. Participants (n = 172; 12–18 years) named their best friend, completed popularity ratings, and a substance use questionnaire. Computer tasks were administered to assess risk‐taking and immediate reward preferences. Reciprocated same‐sex best friendship dyads (n = 49) were distinguished on their popularity, and we controlled for age differences between dyads in the analyses. Best friends were similar in substance use and risk‐taking preferences. More popular friends' risk‐taking preferences were positively associated with alcohol use of less popular friends. These findings underscore best friendship similarity in risky behaviors, and the influence of popular friends.     

Preferences and the price of stability in matching markets

This paper studies welfare tradeoffs in two-sided, one-to-one matching markets. We begin by providing theoretical upper bounds on a utilitarian price of stability, and show that these bounds vary with the composition of participants’ ordinal preference lists. We then turn to simulation experiments to describe how changes in basic characteristics of agents’ preferences can increase or decrease the average price of stability as measured by both utilitarian and Rawlsian welfare criteria. Our results indicate that markets featuring moderate degrees of correlation and positive intercorrelation in the preferences of participants exhibit the steepest tradeoffs between stability and utilitarian welfare and between stability and Rawlsian welfare.     

Moral judgments,gender, and antisocial preferences: an experimental study

We study questionnaire responses to situations in which sacrificing one life may save many other lives. We demonstrate gender differences in moral judgments: males are more supportive of the sacrifice than females. We investigate a source of the endorsement of the sacrifice: antisocial preferences. First, we measure individual proneness to spiteful behavior, using an experimental game with monetary stakes. We demonstrate that spitefulness can be sizable—a fifth of our participants behave spitefully—but it is not associated with gender. Second, we find that gender is consistently associated with responses even when we account for individual differences in the propensity to spitefulness.     

Welfare analysis under uncertainty

This article extends Bergsonian welfare analysis to an environment of uncertainty where preferences are not expected utility and may even be state-inconsistent. Given state-inconsistent preferences, the familiar notion of ex ante efficiency is also state-inconsistent. Other efficiency and welfare concepts achieve state consistency by ignoring entirely the prospective preferences of consumers. The framework developed in this article allows welfare judgments to be state-consistent while respecting prospective and conditional preferences. The theory is called inclusive welfare. An application to optimum insurance subsidies illustrates the practical use of the concept.     

Young on decisions concerning medical aid

Robert Young's recent article on the distribution of scarce medical resources suffers from inexplicitness concerning the foundations of his moral judgments.¹ The purpose of this note is to point out two related lines of thought which he ignores but which threaten to outflank his position.     

A general theorem and eight corollaries in search of correct decision

The main theorem established in this study and its corollaries summarize and generalize the existing results on optimal aggregation of experts judgments under uncertain pairwise choice situations. In particular, we explicate the link between the optimal decision procedure and the decision maker's preferences and biases and the judgmental competences of his consultants. The general theorem directly clarifies under what circumstances the optimal decision rule should be the democratic simple majority rule, the elitist expert rule, an intermediate weighted simple majority rule or a biased weighted or simple qualified majority rule.     

Indecisiveness aversion and preference for commitment

We present an axiomatic model of preferences over menus that is motivated by three assumptions. First, the decision maker is uncertain ex ante (i.e., at the time of choosing a menu) about her ex post (i.e., at the time of choosing an option within her chosen menu) preferences over options, and she anticipates that this subjective uncertainty will not resolve before the ex post stage. Second, she is averse to ex post indecisiveness (i.e., to having to choose between options that she cannot rank with certainty). Third, when evaluating a menu she discards options that are dominated (i.e., inferior to another option whatever her ex post preferences may be) and restricts attention to the undominated ones. Under these assumptions, the decision maker has a preference for commitment in the sense of preferring menus with fewer undominated alternatives. We derive a representation in which the decision maker’s uncertainty about her ex post preferences is captured by means of a subjective state space, which in turn determines which options are undominated in a given menu, and in which the decision maker fears, whenever indecisive, to choose an option that will turn out to be the worst (undominated) one according to the realization of her ex post preferences.     

Time preferences and consumer behavior

We investigate the predictive power of survey-elicited time preferences. The discount factor elicited from choice experiments using real payments predicts various health, energy, and financial outcomes, including overall self-reported health, smoking, installing energy-efficient lighting, and credit card balance. Allowing for time-inconsistent preferences, both the long-run and present-bias discount factors (δ and β) are also significantly associated in the expected direction with several outcomes. We consider several hypotheses regarding the strength of the association between discount factors and outcomes, such as salience of the outcome or liquidity constraints.     

Sleepiness,choice consistency,and risk preferences

We investigate the consistency and stability of individual risk preferences by manipulating cognitive resources. Participants are randomly assigned to an experiment session at a preferred time of day relative to their diurnal preference (circadian matched) or at a non-preferred time (circadian mismatched) and choose allocations between two risky assets [using the Choi et al. (Am Econ Rev 27(5):1921–1938, 2007), design]. We find that choices of circadian matched and mismatched subject are statistically similar in terms of satisfying basic requirements for preference consistency. However, mismatched subjects tend to choose riskier asset bundles.