Dual criteria decisions |
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| Affiliation: | 1. Institute of Health and Biomedical Innovation, Queensland University of Technology, Kelvin Grove, Queensland, Australia;2. Princess Alexandra Hospital, Woolloongabba, Queensland, Australia;3. School of Medicine, University of Queensland, Woolloongabba, Queensland, Australia;4. Division of Endocrinology and Metabolism, Department of Medicine, University of Toronto, Toronto, Ontario, Canada;5. Center for Endocrinology and Diabetes, Institute of Human Development, University of Manchester, Manchester, U.K.;6. Weill Cornell Medical College in Qatar, Doha, Qatar;7. Annidis Corporation, Ottawa, Canada;1. Institute for Future Energy Consumer Needs and Behavior (FCN), School of Business and Economics / E.ON Energy Research Center, RWTH Aachen University, Mathieustraße 10, Aachen, 52074 Germany;2. Department of Business Economics / Marketing Section, Erasmus School of Economics, Erasmus University Rotterdam, P.O. Box 1738, Rotterdam, 3000 DR The Netherlands;3. Department of Economics, Maastricht University, P.O. Box 616, Maastricht, 6200 MD The Netherlands;1. Technische Universität Dresden, Postfach, 01062 Dresden, Germany;2. Fraunhofer-Institut für Werkstoff- und Strahltechnik IWS, Winterbergstraße 28, 01277 Dresden, Germany |
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| Abstract: | The most popular models of decision making use a single criterion to evaluate projects or lotteries. However, decision makers may actually consider multiple criteria when evaluating projects. We consider a dual criteria model from psychology. This model integrates the familiar tradeoffs between risk and utility that economists traditionally assume, allowance for rank-dependent decision weights, and consideration of income thresholds. We examine the issues involved in full maximum likelihood estimation of the model using observed choice data. We propose a general method for integrating the multiple criteria, using the logic of mixture models, which we believe is attractive from a decision-theoretic and statistical perspective. The model is applied to observed choices from a major natural experiment involving intrinsically dynamic choices over highly skewed outcomes. The evidence points to the clear role that income thresholds play in such decision making, but does not rule out a role for tradeoffs between risk and utility or probability weighting. |
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