Rational Decision Theory Research Articles

Judicious management of uncertain risks: II. Simple rules and more intricate models for precautionary decision‐making

Rational decision theory could be more fully exploited for the prudent management of uncertain‐risk situations. After an integrative circumscription of the precautionary principle (PP), 10 key issues are discussed covering assessment, decision and control. In view of this, a variety of decision‐theoretic considerations are explored. ‘Sufficient evidence’ for precautionary action is treated as a diagnostic decision in the framework of signal detection theory. Thus, an assessment about ‘danger’ versus ‘no danger’ should depend on prior probability, evidence strength and the relative seriousness of false‐positive versus false‐negative outcomes. From an illustrated survey of simple and more complex decision rules, it appears that ‘precaution’ may be variously expressed via, for example, maximin utility, minimax regret, maximin expected utility and maximising expected utility‐minus‐regret. Logically, serious uncertain risk (against modest benefits) may provoke a precautionary approach – under the PP. In contrast, however, an uncertain ‘great opportunity’ (against modest costs) may elicit a venturous approach – following the venture principle (VP). Thus, the PP amounts to a basic attitude rather than a normative principle, whose practical application hinges on straightforward albeit uncertain decision variables. Decision postponement, temporal discounting and risk–risk tradeoffs are summarily reviewed. General conclusions are drawn and some suggestions for policy‐making and further research are proposed.

Introduction: The Relevance of Rational Decision Theory for Ethics

Rational decision theory (including rational game theory) has played important roles in more formally oriented ethics, from providing the definition of ‘utility’ in welfare ethics to much more substantial contributions, like the justification of morals in game-theoretic reconstructions of contractarian ethics. Further uses of rational decision theory in ethics include: the justification of morals by means of rational decisions in an original position; the axiomatic justification of utilitarianism; risk ethics etc. So there are many ways in which rational decision theory has actually been used in ethics. These various endeavours are rather intricate, and it is far from clear which role(s) rational decision theory should play in ethics. There is a role for empirical (psychological or economic) decision theory in ethics too. However this introduction as well as this whole issue of Ethical Theory and Moral Practice deals with rational decision theory only; therefore, the addendum “rational” in the following will often be omitted. During the last decades, several proposals have been made to justify certain systems of morals in a decision-theoretic fashion (e.g. by Harsanyi, Rawls, Gauthier, Broome); and, because of the purely formal character of rational decision theory, such proposals are held to be rather strong justifications of morals. However, as is usual in ethics, all these proposals have been contested—in part precisely because of their too formal nature. How much rational decision theory can and should contribute to ethics largely depends on which kind of justification of morals (or parts of morals) by decisiontheoretic means in the end turns out to be valid and sound. The various justificatory uses of decision theory in ethics can be ordered according to the strength of the claims these arguments try to prove. The stronger the most ambitious justificatory project that in the end turns out to be valid and sound, the more important the role of rational DOI 10.1007/s10677-010-9228-9

Reconciling Psychology with Economics: Obesity, Behavioral Biology, and Rational Overeating

The modern phenomenon of obesity is an archetypal example of a behavior whose explanation simultaneously falls within the purview of psychology, economics, and the biological sciences. While psychologists and advocates of public health have long viewed overeating as a weakness or disease in need of treatment, economists have pointed out that - like any other consumer behavior - choices about diet and exercise can be viewed from the perspective of rational decision theory, subject to the influence of variation in price and income but not necessarily as a problem in need of a solution. Recent advances in our understanding of the physiological mechanisms by which genes influence behavior in modern socioeconomic environments have begun to point the way to a resolution to this debate. Drawing inspiration from the scientific literature on the neuroendocrinology of energy homeostasis, this paper reviews the empirical determinants of obesity in light of the biologist's notion that humans and other animals evolved the ability to store body fat as an optimal response to the presence of starvation risk. This approach yields a powerful theoretical foundation, capturing such features of obesity as dynamic inconsistency, genetic variation, susceptibility to pharmaceutical intervention, and variation by season, socioeconomic status, and degree of financial security. It also provides a framework for reconciling the conflict between behavioral (descriptive) and neoclassical (prescriptive) economics.

Parental Resources and Relative Risk Aversion in Intra-secondary Transitions: A Trend Analysis of Non-standard Educational Decision Situations in the Netherlands

The theory of rational educational decisions assumes that parental resources as well as status maintenance motives are relevant for educational decisions. A large body of previous research examines these mechanisms for standard educational decisions at the conventional transition points. There is reason to assume, however, that the same decision parameters affect non-standard educational transitions as well. Secondary education in the Netherlands is divided into four hierarchical tracks and students are allocated to one of these tracks at the age of 12 years. In the Dutch educational system upward and downward intra-secondary transitions between the different tracks are possible during secondary education. The analyses of this article show that upward mobility to a large extent is driven by status maintenance motives but that downward track mobility is not influenced by parental background when initial track placement is taken into account. While effects of parental resources decrease, the status maintenance motive does not change in relevance over time.

On an alleged counter-example to causal decision theory

An alleged counterexample to causal decision theory, put forward by Andy Egan, is studied in some detail. It is argued that Egan rejects the evaluation of causal decision theory on the basis of a description of the decision situation that is different from—indeed inconsistent with—the description on which causal decision theory makes its evaluation. So the example is not a counterexample to causal decision theory. Nevertheless, the example shows that causal decision theory can recommend unratifiable acts (acts that once decided upon appear sub-optimal) which presents a problem in the dynamics of intentions (as a decision is the forming of an intention to act). It is argued that we can defuse this problem if we hold that decision theory is a theory of rational decision making rather than a theory of rational acts. It is shown how decisions can have epistemic side-effects that are not mediated by the act and that there are cases where one can only bring oneself to perform the best act by updating by imaging rather than by conditioning. This provides a pragmatic argument for updating by imaging rather than by conditioning in these cases.

A parameter-free analysis of the utility of money for the general population under prospect theory

Extensive data has convincingly demonstrated that expected utility, the reigning economic theory of rational decision making, fails descriptively. This descriptive failure casts doubt on the validity of classical utility measurements. Prospect theory can better explain choice behaviour because it makes the plausible assumption that risk attitudes are not only driven by sensitivity towards outcomes (utility curvature), but also by sensitivity towards probabilities (probability weighting), and by sensitivity towards whether outcomes are above or below a reference point (loss aversion). This paper presents an experiment that completely measures the utility- and loss aversion component of risk attitudes, using a representative sample of N = 1935 respondents from the general public, in a parameter-free way. This study thereby provides the first measurement of the utility of money for the general population that is valid under (cumulative) prospect theory, does not depend on prior assumptions about the underlying functional form of utility, is externally valid, and does not rule out heterogeneity of individual preferences. The results confirm the concave–convex pattern of utility as predicted by prospect theory, suggest that utility curvature is less pronounced than suggested by classical utility measurements, and show that women are significantly more loss averse than men.

What Are Degrees of Belief?

Probabilism is committed to two theses: Correspondingly, a natural way to argue for probabilism is: and then Most of the action in the literature concerns stage ii). Assuming that stage i) has been adequately discharged, various authors move on to stage ii) with varied and ingenious arguments. But an unsatisfactory response at stage i) clearly undermines any gains that might be accrued at stage ii) as far as probabilism is concerned: if those things are not degrees of belief, then it is irrelevant to probabilism whether they should be probabilities or not. In this paper we scrutinize the state of play regarding stage i). We critically examine several of the leading accounts of degrees of belief: reducing them to corresponding betting behavior (de Finetti); measuring them by that behavior (Jeffrey); and analyzing them in terms of preferences and their role in decision-making more generally (Ramsey, Lewis, Maher). We argue that the accounts fail, and so they are unfit to subserve arguments for probabilism. We conclude more positively: ‘degree of belief’ should be taken as a primitive concept that forms the basis of our best theory of rational belief and decision: probabilism.

Sophisticated approval voting, ignorance priors, and plurality heuristics: A behavioral social choice analysis in a Thurstonian framework.

This project reconciles historically distinct paradigms at the interface between individual and social choice theory, as well as between rational and behavioral decision theory. The authors combine a utility-maximizing prescriptive rule for sophisticated approval voting with the ignorance prior heuristic from behavioral decision research and two types of plurality heuristics to model approval voting behavior. When using a sincere plurality heuristic, voters simplify their decision process by voting for their single favorite candidate. When using a strategic plurality heuristic, voters strategically focus their attention on the 2 front-runners and vote for their preferred candidate among these 2. Using a hierarchy of Thurstonian random utility models, the authors implemented these different decision rules and tested them statistically on 7 real world approval voting elections. They cross-validated their key findings via a psychological Internet experiment. Although a substantial number of voters used the plurality heuristic in the real elections, they did so sincerely, not strategically. Moreover, even though Thurstonian models do not force such agreement, the results show, in contrast to common wisdom about social choice rules, that the sincere social orders by Condorcet, Borda, plurality, and approval voting are identical in all 7 elections and in the Internet experiment.

Symposium on ‘‘Cognition and Rationality: Part I’’ Relationships between rational decisions, human motives, and emotions

In the decision-making and rationality research field, rational decision theory (RDT) has always been the main framework, thanks to the elegance and complexity of its mathematical tools. Unfortunately, the formal refinement of the theory is not accompanied by a satisfying predictive accuracy, thus there is a big gap between what is predicted by the theory and the behaviour of real subjects. Here we propose a new foundation of the RDT, which has to be based on a cognitive architecture for reason-based agents, acting on the basis of their beliefs in order to achieve their goals. The decision process is a cognitive evaluation of conflicting goals, based on different beliefs and values, but also on emotions and desires. We refer to a cognitive analysis of emotions and we integrate them in this more general RDT.

AGAINST OPTIMALITY: LOGICAL FOUNDATIONS FOR DECISION‐THEORETIC PLANNING IN AUTONOMOUS AGENTS

This paper investigates decision‐theoretic planning in sophisticated autonomous agents operating in environments of real‐world complexity. An example might be a planetary rover exploring a largely unknown planet. It is argued that existing algorithms for decision‐theoretic planning are based on a logically incorrect theory of rational decision making. Plans cannot be evaluated directly in terms of their expected values, because plans can be of different scopes, and they can interact with other previously adopted plans. Furthermore, in the real world, the search for optimal plans is completely intractable. An alternative theory of rational decision making is proposed, called “locally global planning.”

The Dr. Psycho Paradox and Newcomb’s Problem

Nicholas Rescher claims that rational decision theory “may leave us in the lurch”, because there are two apparently acceptable ways of applying “the standard machinery of expected-value analysis” to his Dr. Psycho paradox which recommend contradictory actions. He detects a similar contradiction in Newcomb’s problem. We consider his claims from the point of view of both Bayesian decision theory and causal decision theory. In Dr. Psycho and in Newcomb’s Problem, Rescher has used premisses about probabilities which he assumes to be independent. From the former point of view, we show that the probability premisses are not independent but inconsistent, and their inconsistency is provable within probability theory alone. From the latter point of view, we show that their consistency can be saved, but then the contradictory recommendations evaporate. Consequently, whether one subscribes to evidential or causal decision theory, rational decision theory is not in any way vitiated by Rescher’s arguments.

Game Theory in Philosophy

Game theory is the mathematical study of strategy and conflict. It has wide applications in economics, political science, sociology, and, to some extent, in philosophy. Where rational choice theory or decision theory is concerned with individual agents facing games against nature, game theory deals with games in which all players have preference orderings over the possible outcomes of the game. This paper gives an informal introduction to the theory and a survey of applications in diverse branches of philosophy. No criticism is reviewed. Game theory is shown at work in discussions about epistemological dependence (prisoner's dilemma), liberalism and efficiency (Nash equilibrium), Hume's concept of convention (correlated equilibrium), morality and rationality (bargaining games), and distributive justice and egalitarianism (evolutionary game theory). A guide to the literature provides hints at applications in collective intentionality, epistemology, ethics, history of philosophy, logic, philosophy of language, and political philosophy.

Calculated Risks: Why Statesmen Let It Ride

Balancing Risks: Great Power Intervention in the Periphery. By Jeffrey W. Taliaferro. Ithaca: Cornell University Press, 2004. 336 pp., $39.95 (ISBN: 0-8014-4221-4). In Balancing Risks: Great Power Intervention in the Periphery , Jeffrey W. Taliaferro makes a substantial contribution to our knowledge of international politics in the realist tradition. He explains why great powers intervene in regions that are peripheral to their security interests and why they tend to escalate these commitments even if their actions prompt threats to their core security concerns. He does this through a marriage of defensive realism and prospect theory, thus joining the growing ranks of international relations scholars who have foregone the blithe assumption of instrumental rationality and examined the impact that different theories of rational decision making have upon our expectations of foreign policy behavior. The product is elegant, empirically supported, and applicable to a wider domain of foreign policy behaviors. Defensive realism holds that the primary goal of states is security and that the anarchic structure of the international system and the distribution of material capabilities provide weak incentives for aggression and conflict. This proposition poses a dilemma for defensive realism in that it does not locate the reasons for security seeking in either the will to power of classical realism or the systemic imperatives of offensive realism. Taliaferro argues that the perceptions, forecasts, and calculations of statesmen regarding the dynamic nature of the distribution of capabilities are the key sources of conflict …

Living in an Uncertain World

PSYCHOLOGY Very few things in life are certain, apart from death and taxes, and coping with probabilistic events is essential if we are to make any decisions at all. Most of us do, in fact, make decisions daily, but our assessments of event probabilities may not be as accurate or as coldly rational as we would like to believe. In particular, Hertwig et al. compare the choices of people who received written descriptions (the amount of money to be gained or lost and the probability of winning or losing it) of two options with those made by people who were not given the descriptions and instead were allowed to sample the possible outcomes freely and iteratively, thus forming an empirical estimate of the expected values of the options. The authors find that the first group tends to overweight the likelihood of rare events, so that a large but infrequent payoff, for example, is selected more often than rational decision theory would predict. Conversely, the second group tends to discount rare events because they're unlikely to come across them during the sampling period (which may be constrained by our working memory cache), and they pay more attention to recently experienced outcomes, which are, of course, unlikely to include instances of rare events. — GJC Psychol. Sci. , in press.

Science, technology, and values: towards an axiological analysis of techno-scientific activity

To understand techno-science as an activity that is changing the world, it is necessary to analyze the value systems that guide techno-scientific actions. This article proposes a model of analysis, distinguishing ten components of such actions and ten types of values involved in their evaluation processes. Contrary to the theory of rational decision making based on maximizing one value or utility function, the present analysis is based on the notion of the gradual satisfaction of a plurality of values. A distinction between nuclear and orbital values is also suggested. In the case of orbital (or peripheral) values, processes of techno-scientific choice can be represented by means of an evaluation matrix whose numerical values change over time. However, nuclear values must first have been satisfied to some extent. Thus the role of nuclear values should be represented by means of successive axiological sieves.

Economic voting in democracy. The Spanish case

Economic voting analysis in democratic regimes is a line of research of extraordinary relevance and scientific interest. The author’s aim is to study how socioeconomic factors and rational economic conditions influence the final decision of the electorate. Consequently, he proposes a comprehensive model, a group of explanatory variables that synthetize the most outstanding statements of the electoral behaviour : party loyalty, rational decision theory and socio-structural basis of the vote. Even more, the author supports the idea that this proposal should become a desideratum. However, despite the above said, we cannot consider this to be a theoretical study, because our final objective is to identify the factors which determine Spanish voter’s final decision and then to analyse the influence of economic variables on voting tendencies. According to the valuations already done, we can state that, in Spain, economic voting has been used as a reward-punishment item : it damaged the Socialist Party (PSOE) in the general elections of 1993 and favoured the electoral expectancies of the Popular Party (PP) in the same polls. On the other hand, unemployment and income (as sociostructural factors conditioning voter's private situation) have played an important role in Spanish voter's final decision. Finally, we must point out that regarding this question Spain is not so different from other industrialized countries.

Prix du risque et rationalité

Price of risk and rationality The price of risk is a notion which people often perceive as a vague one. Yet, the relevant concept is a very precise one, which the theory of rational decision making has developed for a quarter of a century, as this survey article recalls. Economic theory as well as financial theory suggest evaluating techniques of risky projects which are consistent between themselves and are consistent too with the price of risk concept. Opposite opinions emerge now and then, but contain errors, as the article argues and explains in the light of recent results of specialized research. Nevertheless, practical as well as theoretical considerations have lead to generalizations of those concepts based on experimental research on rationality under risk and on the development of markets, in particular of financial markets. The aim of this article is to present such generalizations without rejecting the bulk of theoretical achievements in this domain.

Darwin Meets the Logic of Decision: Correlation in Evolutionary Game Theory

The proper treatment of correlation in evolutionary game theory has unexpected connections with recent philosophical discussions of the theory of rational decision. The Logic of Decision (Jeffrey 1983) provides the correct framework for correlated evolutionary game theory and a variant of “ratifiability” is the appropriate generalization of “evolutionarily stable strategy”. The resulting theory unifies the treatment of correlation due to kin, population viscosity, detection, signaling, reciprocal altruism, and behavior-dependent contexts. It is shown that (1) a strictly dominated strategy may be selected, and (2) under conditions of perfect correlation a strictly efficient strategy must be selected.

Hit the bottle and run: the role of alcohol in hit-and-run pedestrian fatalities.

Alcohol is associated both with motor vehicle crashes and with crime. We examine the role of alcohol in hit-and-run collisions, based on pedestrian fatalities recorded in the Fatal Accident Reporting System. In 19% of all pedestrian fatalities in 1989 and 1990, the driver left the scene. Time of the accident is available for all pedestrian fatalities. Strong evidence for the influence of alcohol on hit-and-runs is the greater proportion of hit-and-runs at night and during the weekend, two periods when drivers are more likely to be drinking. Half of hit-and-run motorists are eventually identified. Compared to those who remain at the scene, the identified hit-and-run motorists are far more likely to have had a previous arrest for driving while intoxicated. They are also disproportionately young and male, two factors associated with drinking and driving. Only a fraction of drivers are tested for blood alcohol concentration (BAC); those who left the scene are more likely to have a positive BAC. Two theories--the rational decision theory and the personality theory--help explain why drunk drivers are more prone to run after hitting a pedestrian.

Utility and Means in the 1930s

This paper reviews the early axiomatic treatments of quasi-linear means developed in the late 1920s and the 1930s. These years mark the beginning of both axiomatic and subjectivist probability theory as we know them today. At the same time, Kolmogorov, de Finetti and, in a sense, Ramsey took part in a perhaps lesser known debate concerning the notions of mean and certainty equivalent. The results they developed offer interesting perspectives on computing data summaries. They also anticipate key ideas in current normative theories of rational decision making. This paper includes an extended and self-contained introduction discussing the main concepts in an informal way. The remainder focusses primarily on two early characterizations of quasi-linear means: the Nagumo-Kolmogorov theorem and de Finetti's extension of it. These results are then related to Ramsey's expected utility theory, to von Neumann and Morgenstern's and to results on weighted means.