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Allais Paradox
The Allais paradox is a choice problem designed by to show an inconsistency of actual observed choices with the predictions of expected utility theory. The Allais paradox demonstrates that individuals rarely make rational decisions consistently when required to do so immediately. The independence axiom of expected utility theory, which requires that the preferences of an individual should not change when altering two lotteries by equal proportions, was proven to be violated by the paradox. Statement of the problem The Allais paradox arises when comparing participants' choices in two different experiments, each of which consists of a choice between two gambles, A and B. The payoffs for each gamble in each experiment are as follows: Several studies involving hypothetical and small monetary payoffs, and recently involving health outcomes, have supported the assertion that when presented with a choice between 1A and 1B, most people would choose 1A. Likewise, when presented with a ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Expected Utility
The expected utility hypothesis is a foundational assumption in mathematical economics concerning decision making under uncertainty. It postulates that rational agents maximize utility, meaning the subjective desirability of their actions. Rational choice theory, a cornerstone of microeconomics, builds this postulate to model aggregate social behaviour. The expected utility hypothesis states an agent chooses between risky prospects by comparing expected utility values (i.e., the weighted sum of adding the respective utility values of payoffs multiplied by their probabilities). The summarised formula for expected utility is U(p)=\sum u(x_k)p_k where p_k is the probability that outcome indexed by k with payoff x_k is realized, and function ''u'' expresses the utility of each respective payoff. Graphically the curvature of the u function captures the agent's risk attitude. For example, imagine you’re offered a choice between receiving $50 for sure, or flipping a coin to win $100 ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Econometrica
''Econometrica'' is a peer-reviewed academic journal of economics, publishing articles in many areas of economics, especially econometrics. It is published by Wiley-Blackwell on behalf of the Econometric Society. The current editor-in-chief is Guido Imbens. History ''Econometrica'' was established in 1933. Its first editor was Ragnar Frisch, recipient of the first Nobel Memorial Prize in Economic Sciences in 1969, who served as an editor from 1933 to 1954. Although ''Econometrica'' is currently published entirely in English, the first few issues also contained scientific articles written in French. Indexing and abstracting ''Econometrica'' is abstracted and indexed in: * Scopus * EconLit * Social Sciences Citation Index According to the ''Journal Citation Reports'', the journal has a 2020 impact factor The impact factor (IF) or journal impact factor (JIF) of an academic journal is a type of journal ranking. Journals with higher impact factor values are considered mo ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Decision-making Paradoxes
In psychology, decision-making (also spelled decision making and decisionmaking) is regarded as the cognitive process resulting in the selection of a belief or a course of action among several possible alternative options. It could be either rational or irrational. The decision-making process is a reasoning process based on assumptions of values, preferences and beliefs of the decision-maker. Every decision-making process produces a final choice, which may or may not prompt action. Research about decision-making is also published under the label problem solving, particularly in European psychological research. Overview Decision-making can be regarded as a problem-solving activity yielding a solution deemed to be optimal, or at least satisfactory. It is therefore a process which can be more or less rational or irrational and can be based on explicit or tacit knowledge and beliefs. Tacit knowledge is often used to fill the gaps in complex decision-making processes. Usually, both o ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Behavioral Finance
Behavioral economics is the study of the psychological (e.g. cognitive, behavioral, affective, social) factors involved in the decisions of individuals or institutions, and how these decisions deviate from those implied by traditional economic theory. Behavioral economics is primarily concerned with the bounds of rationality of economic agents. Behavioral models typically integrate insights from psychology, neuroscience and microeconomic theory. Behavioral economics began as a distinct field of study in the 1970s and 1980s, but can be traced back to 18th-century economists, such as Adam Smith, who deliberated how the economic behavior of individuals could be influenced by their desires. The status of behavioral economics as a subfield of economics is a fairly recent development; the breakthroughs that laid the foundation for it were published through the last three decades of the 20th century. Behavioral economics is still growing as a field, being used increasingly in res ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
A Friendship That Changed Our Minds
A, or a, is the first letter and the first vowel letter of the Latin alphabet, used in the modern English alphabet, and others worldwide. Its name in English is '' a'' (pronounced ), plural ''aes''. It is similar in shape to the Ancient Greek letter alpha, from which it derives. The uppercase version consists of the two slanting sides of a triangle, crossed in the middle by a horizontal bar. The lowercase version is often written in one of two forms: the double-storey and single-storey . The latter is commonly used in handwriting and fonts based on it, especially fonts intended to be read by children, and is also found in italic type. In English, '' a'' is the indefinite article, with the alternative form ''an''. Name In English, the name of the letter is the ''long A'' sound, pronounced . Its name in most other languages matches the letter's pronunciation in open syllables. History The earliest known ancestor of A is ''aleph''—the first letter of the Phoenician ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Priority Heuristic
{{Improve, reason=seems to be too limited in scope, date=January 2024 The priority heuristic is a simple, lexicographic decision strategy that helps decide for a good option. Psychology In psychology, priority heuristics correctly predict classic violations of expected utility theory such as the Allais paradox, the four-fold pattern, the certainty effect, the possibility effect, or intransitivities.Brandstätter, E., Gigerenzer, G., & Hertwig, R. (2006). The priority heuristic: Making choices without trade-offs. Psychological Review, 113, 409–432. The heuristic maps onto Rubinstein’s three-step model, according to which people first check dominance and stop if it is present, otherwise they check for dissimilarity.Rubinstein, A. (1988). Similarity and decision making under risk (Is there a utility resolution to the Allais-paradox?). Journal of Economic Theory, 46, 145–153. To highlight Rubinstein’s model consider the following choice problem: I: 50% chance to win 2,00 ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Ellsberg Paradox
In decision theory, the Ellsberg paradox (or Ellsberg's paradox) is a paradox in which people's decisions are inconsistent with subjective expected utility theory. John Maynard Keynes published a version of the paradox in 1921. Daniel Ellsberg popularized the paradox in his 1961 paper, "Risk, Ambiguity, and the Savage Axioms". It is generally taken to be evidence of ambiguity aversion, in which a person tends to prefer choices with quantifiable risks over those with unknown, incalculable risks. Ellsberg's findings indicate that choices with an underlying level of risk are favored in instances where the likelihood of risk is clear, rather than instances in which the likelihood of risk is unknown. A decision-maker will overwhelmingly favor a choice with a transparent likelihood of risk, even in instances where the unknown alternative will likely produce greater utility. When offered choices with varying risk, people prefer choices with calculable risk, even when those choices ha ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Nobel Memorial Prize In Economic Sciences
The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (), commonly referred to as the Nobel Prize in Economics(), is an award in the field of economic sciences administered by the Nobel Foundation, established in 1968 by Sveriges Riksbank (Sweden's central bank) to celebrate its 300th anniversary and in memory of Alfred Nobel. Although the Prize in Economic Sciences was not one of the original five Nobel Prizes established by Alfred Nobel's will, it is considered a member of the Nobel Prize system, and is administered and referred to along with the Nobel Prizes by the Nobel Foundation. Winners of the Prize in Economic Sciences are chosen in a similar manner to and announced alongside the Nobel Prize recipients, and receive the Prize in Economic Sciences at the Nobel Prize Award Ceremony. The laureates of the Prize in Economic Sciences are selected by the Royal Swedish Academy of Sciences, which ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Thinking, Fast And Slow
''Thinking, Fast and Slow'' is a 2011 popular science book by psychologist Daniel Kahneman. The book's main thesis is a differentiation between two modes of thought: "System 1" is fast, instinctive and emotional; "System 2" is slower, more deliberative, and more logical. The book delineates rational and non-rational motivations or triggers associated with each type of thinking process, and how they complement each other, starting with Kahneman's own research on loss aversion. From framing choices to people's tendency to replace a difficult question with one that is easy to answer, the book summarizes several decades of research to suggest that people have too much confidence in human judgment. Kahneman performed his own research, often in collaboration with Amos Tversky, which enriched his experience to write the book. It covers different phases of his career: his early work concerning cognitive biases, his work on prospect theory and happiness, and with the Israel Defense Forc ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Von Neumann–Morgenstern Utility Theorem
In decision theory, the von Neumann–Morgenstern (VNM) utility theorem demonstrates that rational choice under uncertainty involves making decisions that take the form of maximizing the expected value of some cardinal utility function. The theorem forms the foundation of expected utility theory. In 1947, John von Neumann and Oskar Morgenstern proved that any individual whose preferences satisfied four axioms has a utility function, where such an individual's preferences can be represented on an interval scale and the individual will always prefer actions that maximize expected utility. Neumann, John von and Morgenstern, Oskar, '' Theory of Games and Economic Behavior''. Princeton, NJ. Princeton University Press, 1953. That is, they proved that an agent is (VNM-)rational ''if and only if'' there exists a real-valued function ''u'' defined by possible outcomes such that every preference of the agent is characterized by maximizing the expected value of ''u'', which can then be ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Oskar Morgenstern
Oskar Morgenstern (; January 24, 1902 – July 26, 1977) was a German-born economist. In collaboration with mathematician John von Neumann, he is credited with founding the field of game theory and its application to social sciences and strategic decision-making. He also made significant contributions to decision theory (see von Neumann–Morgenstern utility theorem). He served as a consultant or co-founder for companies including the Market Research Corporation of America and the original Mathematica Inc. Biography Morgenstern was born in Görlitz in the Prussian Province of Silesia. His mother was rumored to be a daughter of Emperor Frederick III. Morgenstern grew up in Vienna, Austria, where he attended university. In 1925, he graduated from the University of Vienna with a PhD in political science. From 1925 to 1928, he undertook a three-year fellowship financed by the Rockefeller Foundation. After his return in 1928, he became a professor of economics at the Unive ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
