A note on deriving rank-dependent utility using additive joint receipts

Luce and Fishburn (1991) derived a general rank-dependent utility model using an operation ⊕ of joint receipt. Their argument rested on an empirically supported property (now) calledsegregation and on the assumption that utility is additive over ⊕. This note generalizes that conclusion to the case where utility need not be additive over ⊕, but rather is of a more general form, which they derived but did not use in their article. Tversky and Kahneman (1992), conjecturing that the joint receipt of two sums of money is simply their sum, criticized that original model because ⊕=+ together with additive utility implies the unacceptable conclusion that the utility of money is proportional to money. In the present generalized theory, if ⊕=+, utility is a negative exponential function of money rather than proportional. Similar results hold for losses. The case of mixed gains and losses is less well understood.     

On the foundations of mean-variance analyses

Let (, ) and (, ) be mean-standard deviation pairs of two probability distributions on the real line. Mean-variance analyses presume that the preferred distribution depends solely on these pairs, with primary preference given to larger mean and smaller variance. This presumption, in conjunction with the assumption that one distribution is better than a second distribution if the mass of the first is completely to the right of the mass of the second, implies that (, ) is preferred to (, ) if and only if either > or ( = and < ), provided that the set of distributions is sufficiently rich. The latter provision fails if the outcomes of all distributions lie in a finite interval, but then it is still possible to arrive at more liberal dominance conclusions between (, ) and (, ).This research was supported by the Office of Naval Research.     

Office of Economic Opportunity: U.S.A.

The Office of Economic Opportunity (OEO), was created at the height of Lyndon Johnson's “Great Society” anti-poverty programmes. It represented a degree of radical activism that reached its culmination in the 89th Congress (1965-66) and indeed has never been repeated: that Congress was perhaps the only genuinely left-liberal one this century (outside the New Deal era, at any rate). The OEO's social policies were tied to a particular theory of public and social administration: that a “rival” federal agency to the existing ones (Health, Education and Welfare, now Health and Human Services; Housing, and Urban Development, et al) could escape their conservative norms. Both at the federal level and in the “field” agencies it spanned to implement its programmes, the new approach to social administration was to by-pass traditional channels. This short, illustrative rather than definitive article, examines how such an approach was undermined by both the U.S. political structure and by traditional “politics as usual”. It is but a snapshot of the era. However, it hints at the general problems that such approaches to “by-passing” traditional agencies and attempting to develop a new autonomy in social reform may have in many countries, especially those with decentralized political structures. For, while decentralized politics provides opportunities as well as barriers to reformers seeking to by-pass traditional elites (which themselves tend to be decentralized, mirroring political structures), it is suggested here that the balance sheet will tend to be negative from the viewpoint of reformist social administration.     

Two-person sequential bargaining behavior with exogenous breakdown

We examine bargaining behavior in a noncooperative game in which players alternate in making and responding to proposals over the division of a given surplus. Although the number of bargaining periods is unlimited and time is not discounted, the bargaining is subject to exogenous breakdown at each period with a fixed probability which is common knowledge. We manipulate three probabilities of break-down in a between-subjects design that allows comparison with previous studies of two-person bargaining with time discounting. Assuming that subjects maximize expected utility, and this utility is measured by monetary payoffs, our results reject both the subgame perfect equilibrium and equal split solutions. Data analyses reveal that a substantial percentage of subjects behave adaptively in that they systematically search for the highest acceptable demands.     

Nontransitive preferences in decision theory

Intransitive preferences have been a topic of curiosity, study, and debate over the past 40 years. Many economists and decision theorists insist on transitivity as the cornerstone of rational choice, and even in behavioral decision theory intransitivities are often attributed to faulty experiments, random or sloppy choices, poor judgment, or unexamined biases. But others see intransitive preferences as potential truths of reasoned comparisons and propose representations of preferences that accommodate intransitivities. This article offers a partial survey of models for intransitive preferences in a variety of decisional contexts. These include economic consumer theory, multiattribute utility theory, game theory, preference between time streams, and decision making under risk and uncertainty. The survey is preceded by a discussion of issues that bear on the relevance and reasonableness of intransitivity.