Subjective Expected Utility Model Research Articles

Estimating the benefits of construction measures to mitigate earthquake risks in Iran

Despite significant developments in technical aspects of construction measures in buildings to reduce earthquake risks, their widespread implementation in many communities has not occurred. One important factor is the additional cost of construction. The adoption of construction measures depends upon the utility households derive in relation to their costs. In this study we develop a subjective expected utility model of the household's decision process; and also employ a contingent valuation survey to assess the value to households of construction safety features in houses in Tehran and Rasht, Iran. The literature suggests that there are factors which detract from household expenditure to self-insurance, especially in mitigating earthquake risk. However, the results of this study show that, under certain conditions, households are willing to pay a significant premium to ensure that earthquake safety construction features are incorporated into housing design.

Equilibrium in Beliefs under Uncertainty

Existing equilibrium concepts for games make use of the subjective expected utility model axiomatized by Savage [28] to represent players' preferences. Accordingly, each player's beliefs about the strategies played by opponents are represented by a probability measure. Motivated by experimental findings such as the Ellsberg Paradox demonstrating that the beliefs of a decision maker may not be representable by a probability measure, this paper generalizes equilibrium concepts for normal form games to allow for the beliefs of each player to be representable by a closed and convex set of probability measures. The implications of this generalization for strategy choices and welfare of players are studied.Journal of Economic LiteratureClassification Numbers: C72, D81.

Structuring and assessing matrix-probability distributions

This article clarifies the structure and assessment of state matrix probabilities in a lexicographic generalization of the traditional subjective expected utility model for decision under uncertainty. It is a companion and natural successor to “Structuring and Assessing Linear Lexicographic Utility” by the same authors.

Recycling and Morality

In affluent industrial societies, people tend to mentally classify environmental behaviors like recycling within the domain of morality. Intentions in this area are not based on a thorough calculation (conscious or unconscious) of the balance of costs and benefits but are a function of beliefs in what is right or wrong. I provide a brief review of the literature with the intention of uncovering problems and shortcomings in the framework of the Subjective Expected Utility model and the Theory of Reasoned Action with regard to understanding recycling behavior, and discuss examples of misleading policy conclusions. Within the framework of cognitive psychology, Schwartz's model of altruistic behavior offers a more satisfying starting point for understanding recycling behavior in affluent industrial societies.

Toward a theory of choice: Socially embedded preference construction

We present a boundedly rational model of choice that makes room for individual values and social influences in a process of preference construction. It takes from the subjective expected utility model the notion that people assess their options in terms of expected outcomes, referenced to personal values, but it presumes that individuals assess sharply truncated lists of relevant options, outcomes and values and apply a classification logic rather than a calculative one. Such a model is consistent with the nature of evolved human cognitive abilities. The model treats cognitive heuristics and various forms of social influence as determinants of selection of the truncated lists and it treats moral norms as classification rules activated when certain actions and outcomes become salient. The model has implications for understanding how political rhetoric affects individual and social preferences and how “hot cognitions” fit into human choice and for developing improved methods of collective decision making.

The Dialectics of Corporate Deterrence

Panel data fail to support a subjective expected utility model of corporate deterrence. There is partial confirmation, however, that chief executives of small organizations who perceive the certainty of detection as high have better regulatory compliance in their organizations. Perceived sanction threats do not work significantly more effectively for chief executives (a) of for-profit versus nonprofit organizations; (b) who are owners as well as managers; (c) who say they think about sanctions more (sanction salience); and (d) who have a weaker belief in the law. Nor does the effectiveness of corporate deterrents depend on compliance costs. There is, however, a significant deterrent effect for managers who are low on emotionality, but an opposite counter-deterrent effect for actors high on emotionality. This supports the critique of those who condemn rational actor models from a sociology of the emotions perspective. Emotions of guilt among managers predict the subsequent compliance of their organizations. The results are consistent with perceptual deterrent studies of individuals that find little effect of formal sanctions and social disapproval as deterrents, but stronger support for an effect of self-disapproval (guilt or shame) on law observance. Qualitative data are used to show why it would be folly to interpret these results as showing that business regulation can work without sanction threats and social disapproval. Rather, the data evince the need for a complete reconceptionalization of the way policy analysts think about the deterrence of law breaking.

Mental accounting in a sequential Prisoner's Dilemma game

The two-person Prisoner's Dilemma (PD) game is decomposed in three different ways. The games differ with respect to positive and negative outcomes, whether they are played simultaneously or sequentially and whether one or the other person is allowed to play the sequential game first. The observed strategies of 52 participants playing these games in a computer experiment are explained by the values of the payoffs, the expectations regarding the other person's moves and by personal information. It appears that a subjective expected utility model can be used to test different psychological models of choice. A model assuming segregated evaluation of the payoffs in the sequential games gives a better explanation of the choices than a model assuming integration of payoffs. This implies some rules for giving rewards for behavior in the social dilemma situations concerned.

What Common Ground Exists for Descriptive, Prescriptive, and Normative Utility Theories?

Descriptive and normative modeling of decision making under risk and uncertainty have grown apart over the past decade. Psychological models attempt to accommodate the numerous violations of rationality axioms, including independence and transitivity. Meanwhile, normatively oriented decision analysts continue to insist on the applied usefulness of the subjective expected utility (SEU) model. As this gap has widened, two facts have remained largely unobserved. First, most people in real situations attempt to behave in accord with the most basic rationality principles, even though they are likely to fail in more complex situations. Second, the SEU model is likely to provide consistent and rational answers to decision problems within a given problem structure, but may not be invariant across structures. Thus, people may be more rational than the psychological literature gives them credit for, and applications of the SEU model may be susceptible to some violations of invariance principles. This paper attempts to search out the common ground between the normative, descriptive, and prescriptive modeling by exploring three types of axioms concerning structural rationality, preference rationality, and quasi-rationality. Normatively the first two are mandatory and the last, suspect. Descriptively, all have been questioned, but often the inferences involved have confounded preference and structural rationality. We propose a prescriptive view that entails full compliance with preference rationality, modifications of structural rationality, and acceptance of quasi-rationality to the extent of granting a primary role to the status quo and the decomposition of decision problems into gains and losses.

Adolescent Women's Contraceptive Decision Making

A modified rational decision model incorporating salient events and social influences (particularly from sexual partners) is used to analyze adolescent women's consistent use of oral contraceptives (OCs) over a six-month period. Data are taken from a panel study of 308 clients of an inner-city family planning clinic. Expected OC use was computed for each subject on the basis of subjective expected utility (SEU) theory, and is found in multivariate analyses to be a significant predictor of actual OC use. In addition, variables representing baseline and follow-up partner influences, the salience of pregnancy for the subject, and positive side effects of OCs during the first months of use are found to predict OC use. Partner's support of OC use during follow-up and positive side effects of OCs are found to predict OC use among subjects for whom OC use was not the expected decision according to baseline SEU. Implications of the findings for models of adolescents' contraceptive behavior and for clinicians are discussed.

Prediction of and Recommendation for Honest Behavior

Abstract Given a hypothetical situation in which a stimulus person was described as having picked up money dropped unknowingly by another person, 480 undergraduate Indian students at the University of Bombay predicted the likelihood of honesty (returning the money to its owner) and also indicated the strength of their recommendation for honesty. The experiment had a 4 × 2 × 2 × 2 (Role × Location × Level of Temptation × Subject Sex) factorial design. Perceived likelihood of honesty was greater and recommendations for honesty were stronger when the location was crowded rather than deserted. Female subjects perceived a lower likelihood of honesty and gave stronger recommendations for honesty than male subjects. Perceived likelihood of honesty was higher and recommendations for honesty were stronger for the roles of policeman and bystander compared with those of beggar and pickpocket. These and other findings were interpreted within the framework of the subjective expected utility model.

Modelling uncertainty and inductive inference: A survey of recent non-additive probability systems

Until recently, modelling uncertainty, especially subjective uncertainty judgments, was addressed by means of tools from the mathematical theory of probability. However, the discovery of systematic behavioral deviations with regard to the subjective expected utility model, together with the emergence of knowledge engineering (especially expert systems) have pointed out some limitations in the knowledge representation power of the standard additive theory. Motivated by such problems, new classes of set-functions have been proposed to model subjective uncertainty and are reviewed in this paper. Interpretive settings for these new models are proposed. The question of preserving notions of independence, conditioning etc… is discussed, with a view to develop new tools for inductive reasoning in the spirit of Bayes theorem. This discussion includes various approaches to inductive reasoning such as probability kinematics based on information measures, and the combination of uncertain or default information as studied in the field of Artificial Intelligence.

Social-psychological approaches to understanding addictive behaviours: attitude-behaviour and decision-making models.

SummaryThis paper reviews a number of psychological theories of decision‐making and attitude‐behaviour relations that have been applied, or are potentially applicable, to addictive behaviours. The theories discussed (subjective expected utility models, Fishbein and Ajzen's theory of reasoned action, and the Health Belief Model) are expectancy‐value formulations in which the key concepts are the expectancies or subjective probabilities concerning the outcomes of a given action and the subjective values or utilities attached to those outcomes. Potential criticisms of this approach are considered in the course of reviewing the theories and the research bearing on them. It is concluded that the theories discussed are a rich source of ideas that may be used to further our understanding of addictive behaviours but that their potential has so far been largely untapped. In particular, studies are required that involve experimental manipulation and/or repeated measurement of beliefs and attitudes.

Testing Expectancy Models: A Conjoint Measurement Approach

The term expectancy theories refers to a category of social cognitive theories that use the same underlying Subjective Expected Utility (SEU) model for describing goal directed behavior. However, the mathematical SEU formulation has in many expectancy theories a dubious validity. Expectancy theorists lack an adequate measurement model to test their formal theory in a valid way. The conjoint measurement approach is proposed as a possible solution for this problem. In two experiments we tested an expectancy model respectively by means of the UNICON scaling algorithm for conjoint measurement and by means of an axiomatic approach. Evidence was found for the functional form of the SEU model, which implies that the subjective probability (expectancy) and the utility of an outcome of an action combine multiplicatively while the resultant products combine additively. In the discussion, it is argued that only the descriptive validity of a model has been proven. More research is needed to identify the cognitive processes that can be described by addition and multiplication.

Cardinal coordinate independence for expected utility

A representation theorem for binary relations on R n is derived. It is interpreted in the context of decision making under uncertainty. There we consider the existence of a subjective expected utility model to represent a preference relation of a person on the set of bets for money on a finite state space. The theorem shows that, for this model to exist, it is not only necessary (as has often been observed), but it also is sufficient, that the appreciation for money of the person has a cardinal character, independent of the state of nature. This condition of cardinal appreciation is simple and thus easily testable in experiments. Also it may be of help in relating the neo-classical economic interpretation of cardinal utility to the von Neumann-Morgenstern interpretation.

Error Patterns in the Prediction of Fertility Behavior1

Two separate three‐wave, 2‐year, longitudinal studies investigated error patterns in two decision models' predictions of couples' birth‐planning decisions. One study tested the subjective expected utility model with a sample of married couples from the state of Washington and the other study tested the Fishbein model using a sample of married women from Illinois. Consistent with the proposal that predictions of deviation from the status quo result in a higher proportion of prediction errors than predictions of nondeviation from the status quo, both studies demonstrated that when couples were predicted to decide not to become pregnant, predictive accuracy was very high, but when couples were predicted to decide to become pregnant, predictive accuracy was significantly lower. Two hypothesized explanations for the biased error pattern were considered and received some support. The first, resembling the concept of inertia, is that a stronger motivational force is required to compel a person to elect a change from the status quo than is required to maintain the status quo. The second focuses on changes in decisions as a function of time and events. The heuristic value of directly examining prediction errors, in contrast to the more prevalent practice of reporting only one summary index of goodness of fit, was discussed.

Subjective expected utility: A model of decision‐making

Publisher Summary This chapter describes a model of decision-making—subjective expected utility (SEU) model. Studying the prescriptive and descriptive validity of this model is the pre­occupation of researchers in a diffuse field known as “behavioral decision theory” (BDT). SEU model reduces the universe of decisions to a common set of primitives about which universal truths in due time can be derived. A second enticement is the presence of an axiomatic basis for these models. Any individual who subscribes to a small set of reasonable rules should behave according to the model. Prescriptive reasonableness is presumably a necessary condition for the descriptive validity of a theory of conscious behavior. The secrecy of its longevity lies in the fact that the model (1) expresses some fundamental truth in some situations, (2) has a remarkable ability to be close to the mark in situations where its underlying logic is clearly inappropriate, and (3) has proponents of heroic tenacity.

Factors Involved in Juveniles' Decisions About Crime

Delinquency is viewed as a purposeful behavior that is the result of a rational decision in which the pros and cons are weighed and the act that promises the greatest potential gain is performed. As a first step in evaluating this view, an experiment was run using 45 male juvenile offenders as subjects and the Subjective Expected Utility (SEU) model from decision theory as the model of the decision process. Results showed that the SEU model correctly predicted 62.7% of the subjects' decisions, and that the proportion of decisions favoring committing an offense increased as a function of the degree to which the SEU favored such a decision.

THE STRANGER AND THE SPOUSE AS TARGET PERSONS FOR COMPLIANCE-GAINING STRATEGIES: A SUBJECTIVE EXPECTED UTILITY MODEL1

This study examines the use of compliance-gaining message strategies in “interpersonal” versus “noninterpersonal” relationships. Subjects were asked how likely they would be to use persuasive strategies in a hypothetical situation involving either a spouse (interpersonal situation) or new neighbors (noninterpersonal situation). A subjective expected utility model is proposed to account for subjects' choice of strategies. According to the SEU model, subjects weigh the expected advantages and disadvantages of strategies both in terms of their persuasiveness and their effects on the relationship with the persuadee. Regression analysis supported the use of the SEU model to predict subjects' choice of strategies. Situational comparisons of SEU indicated that most strategies are rated more persuasive, less likely to damage the personal relationship, and more likely to be used in the spouse situation than in the neighbor situation.

Subjective expected utility and the prediction of birth-planning decisions

Married couples having various sizes of families completed the birth-planning hierarchy (L. R. Beach, B. D. Townes, F. L. Campbell, & G. W. Keating. Organizational Behavior and Human Performance 1976, 15, 99–116.) Predictions were made about whether or not each couple would decide to have a(another) child within the ensuing 2 years. Results showed that a subjective expected utility model predicted best (73% correct) for those couples who had not yet attained their desired family size. The errors in prediction were clearly not random and possible reasons for them are explored.

New ideas in decision theory

Three different decision models are presented: an analysis of risk-taking behaviour which encompasses both the subjective expected utility model and Atkinson's motivation model; a model concerned with the social behaviour of the interaction between individual and group actions which leads to a new class of decision models capable of accounting for such phenomena as the intransitivity of preferences; and a model of the formal structure of cognitive problems involved in choice based on a linguistic representation of motivation. Finally, an outline is presented of the application of formal action theory to pre-decisional situations.