Market uncertainty and the process of belief formation

Subjective or personal belief formation has been up to now grounded on axioms (e.g., the axioms of Savage) that can be described asintrospection axioms, for they bear only on judgments formed by the individual within himself (e.g., judgments on the ordering of the “acts” in Savage's contribution), excluding every reference to other, possibly external, sources of opinion formation. This current view, linked to the traditional concept ofinstrumental economic rationality, implicitly assumes cognitive capacities that are most of the time out of the reach of any individual. Therefore this view is little or improperly used in the practical world of economics and/or management. An alternative view of belief formation on a market is offered in this article, grounded on a much more modest demand of cognitive capacities from the individual and on a different concept of economic rationality known ascognitive rationality. The model introduces to this end the global concept of market psychology as well as the concept of regular revision of the sets of opinions. Belief formation then appears as a process of deliberation between the individual and the market, rationality emerging within this process as deeply intertwined with the way the individual revises his opinions during the process. The rational treatment of beliefs in view of reaching a decision can consequently be carefully distinguished from their rational formation process.     

High Stakes and Acceptance Behavior in Ultimatum Bargaining:

This paper presents the results of a within-subject experiment testing whether an increase in the monetary stakes by a factor of 50 – which had never been done before – influences individual behavior in a simple ultimatum bargaining game. Contrary to current wisdom, we found that lowest acceptable offers stated by the responder are proportionally lower in the high-stake condition than in the low-stake condition. This result may be interpreted in terms of the type of utility functions which characterize the subjects. However, in line with prior results, we find that an important increase of the monetary stakes in the ultimatum game has no effect on the offers made by the proposer. Yet, the present research suggests that the reasons underlying these offers are quite different when the stakes are high.     

Decision Making in `Random in a Broad Sense' Environments

It is shown that the uncertainty connected with a `random in a broad sense' (not necessarily stochastic) event always has some `statistical regularity' (SR) in the form of a family of finite-additive probability distributions. The specific principle of guaranteed result in decision making is introduced. It is shown that observing this principle of guaranteed result leads to determine the one optimality criterion corresponding to a decision system with a given `statistical regularity'.     

Are game theoretic concepts suitable negotiation support tools? From Nash equilibrium refinements toward a cognitive concept of rationality

If game theory is to be used as a negotiation support tool, it should be able to provide unambiguous recommendations for a target to aim at and for actions to reach this target. This need cannot be satisfied with the Nash equilibrium concept, based on the standard instrumental concept of rationality. These equilibria, as is well known, are generally multiple in a game. The concept of substantive or instrumental rationality has proved to be so pregnant, however, that researchers, instead of re-evaluating its use in game theory, have simply tried to design concepts related to the Nash equilibrium, but with the property of being unique in a game — i.e., they have devised ways ofselecting among Nash equilibria. These concepts have been labeledrefined Nash equilibria. The purpose of this paper is to show the following.

1. The different types of refined Nash equilibria, based on the principle of backward induction, can lead to severe contradictions within the framework itself. This makes these concepts utterly unsatisfactory and calls for a new appraisal of the reasoning process of the players.
2. The degree of confidence in the principle of backward induction depends upon the evaluation of potential deviations with respect to the extended Nash equilibrium concept used and upon the possible interpretations of such deviations by the different players. Our goal is to show that the nature of these possible interpretations reinforces the argument that a serious conceptual reappraisal is necessary.
3. Some form of forward induction should then become the real yardstick of rationality, extending Simonianprocedural rationality towards the concept ofcognitive rationality. This could open the way to a renewed game theoretic approach to negotiation support systems. Such a research program, which would be a revision of the basic game theoretic concepts, is dealt with in the end of the paper.

     

Cognition and uncertainty

In the first part, we try to give a representation of the process by which man endeavours to grasp uncertainty. We propose a backward exploration which we will modelize through an influence diagram and then we can draw a few conclusions from that representation for the axiomatics of Decision.In the second part, we deal with the processing of the information formatted in such a way, regarding both its temporal complexity and its elective complexity.The first part as the second one dealing with representation and the consequences for information processing of uncertainty cognition lead to a severe criticism of the expected utility hypothesis.To conclude, we suggest a few remarks on expert systems of decision aid under uncertainty.