Abstract
We have developed a method for learning relative preferences from histories of choices made, without requiring an intermediate utility computation. Our method infers preferences that are rational in a psychological sense, where agent choices result from Bayesian inference of what to do from observable inputs. We further characterize conditions on choice histories wherein it is appropriate for modelers to describe relative preferences using ordinal utilities, and illustrate the importance of the influence of choice history by explaining all major categories of context effects using them. Our proposal clarifies the relationship between economic and psychological definitions of rationality and rationalizes several behaviors heretofore judged irrational by behavioral economists.
Highlights
Where both psychology and economics unite in principle is their interest in the preferences of humans
Since we focus on discrete-choice settings, problem description is equivalent to contexts, and actions are equivalent to choosing options, so the case-based decision theory (CBDT) memory tuple can be harmonized in our notation as hc, x, ri
By developing a psychological theory of preference formation that emits economically rational preferences as a special case, we have assisted in clarifying the boundaries between the two disciplines and presented evidence showing that the implicit psychology underlying economics is good psychology assuming certain conditions apply on the history of subjects’ experience
Summary
Where both psychology and economics unite in principle is their interest in the preferences of humans. The principal contribution of this work is the development of a formal model that infers the relative desirability of options from a prior history of choices using Bayesian learning This theory permits observers to learn from past choices without assuming that they are either assigning hedonic ‘utility’ to options, or even comparing them with other options available. Existing models of preference formation can either incorporate the role of experience in shaping the desirability of one object, or ignore the role of experience and estimate some fixed preference relation across multiple objects It is this theoretical impasse that we break in this paper—we develop a formal model that allows preferences to change over time, as psychological theories of conditioning show they must, and permits inter-option preference comparisons.
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