BEHAVIORAL DECISION MAKING WITH COMBINED STATES UNDER IMPERFECT INFORMATION

Abstract

Behavioral decision making is an area of multidisciplinary research attracting growing interest of scientists and practitioners, economists, and business people. A wide spectrum of successful theories is present now, including Prospect theory, multiple priors models, studies on altruism, trust and fairness. However, these theories are developed for precise and complete information, whereas real information concerning a decision maker's (DM) behavior and environment is imperfect, qualitative, and, as a result, often described in natural language (NL). We suggest an approach based on modeling a DM's behavior by a set of states. Each state represents a certain principal behavior. In our approach, states of nature and DM's states constitute a single space of combined states. For formalizing relevant information described in NL, we use fuzzy set theory. The utility model is based on Choquet-like integration over combined states. The investigations show that Expected Utility, Choquet Expected Utility and Cumulative Prospect Theory are special cases of the suggested approach. We apply the suggested approach to solving a benchmark and a real-life decision problem. The obtained results show validity of the suggested approach.