Probability and juxtaposition effects: An experimental investigation of the common ratio effect

Several theories explain the common ratio effect as a probability effect resulting from properties of individuals' preference orderings over probability distributions of consequences. In contrast, regret theory explains it as the result of changes in the juxtaposition of consequences in the action/state matrix. This article reports an experiment that allowed probability effects and juxtaposition effects to be separately identified for some common ratio problems, some of which involved real gains and others, real losses. The main finding is that changes in the juxtaposition of consequences have systematic effects on choices in the direction predicted by regret theory.University of East Anglia     

Regret aversion or event-splitting effects? more evidence under risk and uncertainty

Recent experimental evidence has concluded that experimentally observed juxtaposition effects, as predicted by regret theory¹, are largely attributable to “event-splitting effects” (ESEs) whereby the subjective decision weight attached to an outcome depends on the number of, as well as on the combined probability of, the disjoint events in which that outcome occurs. An experiment is reported that discriminates between juxtaposition effects and ESEs under conditions of both complete and incomplete information. The results confirm that juxtaposition effects are indeed largely due to ESEs and are robust over different informational conditions.     

Tempered Regrets Under Total Ignorance

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.     

Axiomatization of a Preference for Most Probable Winner

In binary choice between discrete outcome lotteries, an individual may prefer lottery L₁ to lottery L₂ when the probability that L₁ delivers a better outcome than L₂ is higher than the probability that L₂ delivers a better outcome than L₁. Such a preference can be rationalized by three standard axioms (solvability, convexity and symmetry) and one less standard axiom (a fanning-in). A preference for the most probable winner can be represented by a skew-symmetric bilinear utility function. Such a utility function has the structure of a regret theory when lottery outcomes are perceived as ordinal and the assumption of regret aversion is replaced with a preference for a win. The empirical evidence supporting the proposed system of axioms is discussed.     

Regret theory with general choice sets

The regret theory of choice under uncertainty proposed by Loomes and Sugden has performed well in explaining and predicting violations of Expected Utility theory. The original version of the model was confined to pairwise choices, which limited its usefulness as an economic theory of choice. Axioms for a more general form of regret theory have been proposed by Loomes and Sugden. In this article, it is shown that a simple nonmanipulability requirement is sufficient to characterize the functional form for regret theory with general choice sets. The stochastic dominance and comparative static properties of the model are outlined. A number of special cases are derived in which regret theory is equivalent to other well-known theories of choice under uncertainty.I would like to thank Graham Loomes, Robert Sugden, Peter Wakker, and Nancy Wallace for helpful comments and criticism.     

Does Learning Diminish Violations of Independence, Coalescing and Monotonicity?

Violations of expected utility theory are sometimes attributed to imprecise preferences interacting with a lack of learning opportunity in the experimental laboratory. This paper reports an experimental test of whether a learning opportunity which engenders accurate probability assessments, by enhancing understanding of the meaning of stated probability information, causes anomalous behaviour to diminish. The data show that whilst in some cases expected utility maximising behaviour increases with the learning opportunity, so too do systematic violations. Therefore, there should be no presumption that anomalous behaviour under risk is transient and that discovered preferences will be appropriately described by expected utility theory.     

Reassessing the Testing of Generic Utility Models for Mixed Gambles

Miyamoto's generic utility theory (GUT) is a bilinear form that captures a diverse set of utility formulations. The present study, using mixed gambles, experimentally evaluates GUT in a fashion similar to the Chechile and Cooke and the Chechile and Butler studies, but employs a novel method of analysis. The reasons for the new method is to solve a fundamental flaw with the regression approacch used in the earlier experiments and to solve a problem of model overfit. Several participants from the earlier Chechile and Butler experiment are now recognized as being consistent with the GUT representation, but many are not. A new experiment, with actual economic consequences for the participants, does not support GUT. Suggestions are provided for subsequent research studies assessing the GUT class of models.     

强制结构理论及实验检验

学术界对强制关系的研究较少,尽管它无处不在。本文基于要素论探讨强制结构的含义、分类及模型,重点探讨了间接强制结构的效应。间接强制是涉及至少三个行动者的一类“不给钱就制裁,给钱就‘保护’你”的结构关系。实验研究结果表明,在边界条件内,间接强制结构与直接强制结构一样有效力,即有类似的强制幅度和力度,二者都使强制者获得最大的剥夺率。本文最后讨论了影响强制效果的因素,包括强制者的贪欲与策略、强-强联盟及受制者联盟的效应等。     

Informational Asymmetries and Observational Learning in Search

As economics modeling moves from super rational decision makers to considering boundedly rational agents, some economic problems deserve a second look. This paper studies the effects of learning on the efficiency of search. Once learning is taken into account, the structure of information flow becomes important. In particular, I highlight the truncated information structure in the search problem. Agents stop searching once a sufficiently attractive price is found. Therefore, they observe the performance of shorter searches, but do not directly observe the performance of longer searches. I design and conduct an experiment to test the hypothesis that this asymmetric flow of information leads agents to search too little. I find strong evidence in its favor. This suggests that in the presence of learning, the provision of a more symmetric information structure will make search more efficient.JEL Classification: C91, D83     

A Parallel between Regret Theory and Outranking Methods for Multicriteria Decision Making Under Imprecise Information

Incorporation of the behavioral issues of the decision maker (DM) is among the aspects that each Multicriteria Decision Making (MCDM) method implicitly or explicitly takes into account. As postulated by regret theory, the feelings of regret and rejoice are among the behavioral issues associated with the entire decision making process. Within the context of MCDM, the DM may feel regret, when the chosen alternative is compared with another one having at least one better criterion value. PROMETHEE II is a widely known MCDM method that makes no explicit incorporation of regret attitude of the DM. In this paper, we elaborate on the applicability of regret theory to MCDM context. In particular, we investigate the findings of regret theory and explore the parallel between regret theory and PROMETHEE II method. Relying on the concepts of regret theory, we demonstrate how a decision that is made using a PROMETHEE II based outranking method conforms to the regret attitude of the DM.     

Prosocial risk taking and interpersonal regret in children: An individual differences study

The relations between prosocial risk taking (taking a risk to benefit another person; PSRT) and interpersonal regret (regret that one's choices have caused a poor outcome for another person) were examined in 192 children aged 7–9. PSRT was measured by children's choices within a gambling task in which one choice guaranteed participants a good prize whereas the other involved risking this prize to help a peer also win a good prize. Interpersonal regret was assessed within the same task by examining children's change in emotion when they learned they would have won a better prize for a peer had they chosen differently. Performance on this task was also examined in relation to sympathy and resource sharing. Findings indicated that the operationalizations of PSRT and interpersonal regret were meaningful. Children who took a prosocial risk were more generous in a resource sharing task. In some circumstances, children who took a prosocial risk were also more likely to experience interpersonal regret than those who did not take a prosocial risk, indicating that experiencing interpersonal regret may be related to individual differences in prosociality. However, experiencing interpersonal regret did not have a direct effect on subsequent prosocial behavior, when measured by resource sharing. We consider findings in relation to a possible distinction between outcome and process regret and the generalizability of the behavioral consequences of regret.     

Testing independence conditions in the presence of errors and splitting effects

This paper presents experimental tests of several independence conditions implied by expected utility and alternative models. We perform repeated choice experiments and fit an error model that allows us to discriminate between true violations of independence and those that can be attributed to errors. In order to investigate the role of event splitting effects, we present each choice problem not only in coalesced form (as in many previous studies) but also in split forms. It turns out previously reported violations of independence and splitting effects remain significant even when controlling for errors. However, splitting effects have a substantial influence on tests of independence conditions. When choices are presented in canonical split form, in which probabilities on corresponding probability-consequence ranked branches are equal, violations of the properties tested could be reduced to insignificance or even reversed.     

Testing Prospect Theories Using Probability Tradeoff Consistency

The two versions of prospect theory, original prospect theory (OPT; Kahneman and Tversky, 1979) and cumulative prospect theory (CPT; Tversky and Kahneman, 1992), use different composition rules to combine the value function and the probability weighting function and hence value gambles with two or more non-zero outcomes differently. Previous tests of OPT and CPT have yielded mixed results, with some investigations supporting OPT and some supporting CPT. We extend the probability tradeoff consistency axiom used in Abdellaoui (2002) for CPT to OPT, and develop a critical test of the two prospect theories based on their respective probability tradeoff consistency conditions. An empirical investigation of the critical test shows that choices are consistent with OPT, but not CPT, for gambles that do not involve a certainty effect, and consistent with both CPT and OPT for gambles that do involve a certainty effect, provided that an editing operation is invoked for OPT.     

Testing Descriptive Utility Theories: Violations of Stochastic Dominance and Cumulative Independence

Choices between gambles show systematic violations of stochastic dominance. For example, most people choose ($6, .05; $91, .03; $99, .92) over ($6, .02; $8, .03; $99, .95), violating dominance. Choices also violate two cumulative independence conditions: (1) If S = (z, r; x, p; y, q) R = (z, r; x, p; y, q) then S = (x, r; y, p + q) R = (x, r + p; y, q). (2) If S = (x, p; y, q; z, r) R = (x, p; y, q; z, r) then S = (x, p + q; y, r) R = (x, p; y, q + r), where 0 < z < x < x < y < y < y < z.Violations contradict any utility theory satisfying transivity, outcome monotonicity, coalescing, and comonotonic independence. Because rank-and sign-dependent utility theories, including cumulative prospect theory (CPT), satisfy these properties, they cannot explain these results.However, the configural weight model of Birnbaum and McIntosh (1996) predicted the observed violations of stochastic dominance, cumulative independence, and branch independence. This model assumes the utility of a gamble is a weighted average of outcomes\' utilities, where each configural weight is a function of the rank order of the outcome\'s value among distinct values and that outcome\'s probability. The configural weight, TAX model with the same number of parameters as CPT fit the data of most individuals better than the model of CPT.     

Dynamic Choice, Independence and Emotions

From the viewpoint of the independence axiom of expected utility theory, an interesting empirical dynamic choice problem involves the presence of a “global risk,” that is, a chance of losing everything whichever safe or risky option is chosen. In this experimental study, participants have to allocate real money between a safe and a risky project. Treatment variable is the particular decision stage at which a global risk is resolved: (i) before the investment decision; (ii) after the investment decision, but before the resolution of the decision risk; (iii) after the resolution of the decision risk. The baseline treatment is without global risk. Our goal is to investigate the isolation effect and the principle of timing independence under the different timing options of the global risk. In addition, we examine the role played by anticipated and experienced emotions in the choice problem. Main findings are a violation of the isolation effect, and support for the principle of timing independence. Although behavior across the different global risk cases shows similarities, we observe clear differences in people’s affective responses. This may be responsible for the conflicting results observed in earlier experiments. Dependent on the timing of the global risk different combinations of anticipated and experienced emotions influence decision making.      

散文理论“文以载道”模式及其在小说理论中的化用

文与道的关系几乎是中国古代文学理论中最重要的问题,“文以载道”成为普遍应用的思维模式。小说理论以散文理论为母体,既借鉴其概念术语,又移植其观念模式。散文理论的文以载道模式也影响到小说理论,并成为小说理论的核心理念。散文理论文以载道模式的着重点是道,而小说理论文以载道的关注重点却是文,将儒家道德伦理观念之“道”泛化为有益于世道人心的思想观念。借助这种模式,“文”假“道”威,提升通俗小说的社会地位。持此论调的小说理论家们对小说独有的审美特点和艺术规律关注不够。     

Minimax,information and ultrapessimism

Discussing the foundations of the minimax principle, Savage (1954) argued that it is utterly untenable for statistics because it is ultrapessimistic when applied to negative income, but claimed that such objection is not relevant when the principle is applied to regret. In this paper I rebut the latter claim. I first present an example where ultrapessimism, as Savage understood it, applies to minimax regret but not to minimax negative income. Then, for a sequential decision problems with two terminal acts and a finite number of states of nature, I give necessary and sufficient conditions for a decision rule to be ultrapessimistic, and show that for every payoff table with at least three states, be it in regret form or not, there exist an experiment such that the minimax rule is ultrapessimistic. I conclude with some more general remarks on information and the value of experimentation for a minimax agent.     

证券投资基金羊群效应实证研究

我国基金市场中存在显著的“羊群效应”,“羊群效应”随着股票历史收益率的增加呈现逐步减弱的趋势;基金卖出的“羊群效应”强于买入的“羊群效应”,“羊群效应”与基金投资绩效之间具有正相关性;基金在买卖小规模公司股票时的“羊群效应”明显强于买卖大规模公司股票时的“羊群效应”。     

Co‐production,governance and practice: The dynamics and effects of User Voice Prison Councils

Drawing on Bevir's (2013) decentered theory of governance, and Donati's (2016) theory of the relational subject, this article explores how User Voice Prison Councils in England have contributed to shifts in aspects of prison governance and practice. It discusses the cultural and policy context in which the Councils emerged and operate before exploring their perceived purposes, dynamics, and effects. User Voice Prison Councils represent an important example of different actors co‐producing alternative patterns of governance through innovations in democratic participation. Interviews with Prison Council participants, User Voice and prison staff revealed that the development of such “bottom–up” participatory governance practices require and restore interpersonal trust, the mechanisms of which are interactions underpinned by a distinct manner of relating and the establishment of a network of relations oriented to the common good. The effects include enhanced institutional legitimacy; improvements in prison officer‐prisoner relations; and greater quality of life for prisoners. Revealing the “how” of co‐production, from the “inside”, the argument advanced here is that while the effects of co‐production may be more ameliorative than transformative, such collaborative and dialogic approaches can enable differently situated people to forge new norms of interactions and forms of democratic participation to achieve collective goals.