IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2001.00122.html
   My bibliography  Save this paper

Entropic Decision Making

Author

Listed:
  • Adnan Rebei

Abstract

Using results from neurobiology on perceptual decision making and value-based decision making, the problem of decision making between lotteries is reformulated in an abstract space where uncertain prospects are mapped to corresponding active neuronal representations. This mapping allows us to maximize non-extensive entropy in the new space with some constraints instead of a utility function. To achieve good agreements with behavioral data, the constraints must include at least constraints on the weighted average of the stimulus and on its variance. Both constraints are supported by the adaptability of neuronal responses to an external stimulus. By analogy with thermodynamic and information engines, we discuss the dynamics of choice between two lotteries as they are being processed simultaneously in the brain by rate equations that describe the transfer of attention between lotteries and within the various prospects of each lottery. This model is able to give new insights on risk aversion and on behavioral anomalies not accounted for by Prospect Theory.

Suggested Citation

  • Adnan Rebei, 2019. "Entropic Decision Making," Papers 2001.00122, arXiv.org.
    • Handle: RePEc:arx:papers:2001.00122
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2001.00122
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 69(1), pages 99-118.
    2. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    3. Javier A Caballero & Nathan F Lepora & Kevin N Gurney, 2015. "Probabilistic Decision Making with Spikes: From ISI Distributions to Behaviour via Information Gain," PLOS ONE, Public Library of Science, vol. 10(4), pages 1-35, April.
    4. Dertwinkel-Kalt, Markus & Köster, Mats, 2015. "Violations of first-order stochastic dominance as salience effects," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 59(C), pages 42-46.
    5. Hendrikje Nienborg & Bruce G. Cumming, 2009. "Decision-related activity in sensory neurons reflects more than a neuron’s causal effect," Nature, Nature, vol. 459(7243), pages 89-92, May.
    6. Birnbaum, Michael H & Navarrete, Juan B, 1998. "Testing Descriptive Utility Theories: Violations of Stochastic Dominance and Cumulative Independence," Journal of Risk and Uncertainty, Springer, vol. 17(1), pages 49-78, October.
    7. Loomes, Graham & Starmer, Chris & Sugden, Robert, 1992. "Are Preferences Monotonic? Testing Some Predictions of Regret Theory," Economica, London School of Economics and Political Science, vol. 59(233), pages 17-33, February.
    8. repec:cup:judgdm:v:14:y:2019:i:4:p:513-533 is not listed on IDEAS
    9. Birnbaum, Michael H. & Chavez, Alfredo, 1997. "Tests of Theories of Decision Making: Violations of Branch Independence and Distribution Independence," Organizational Behavior and Human Decision Processes, Elsevier, vol. 71(2), pages 161-194, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Birnbaum, Michael H., 2004. "Tests of rank-dependent utility and cumulative prospect theory in gambles represented by natural frequencies: Effects of format, event framing, and branch splitting," Organizational Behavior and Human Decision Processes, Elsevier, vol. 95(1), pages 40-65, September.
    2. R. Luce & A. Marley, 2005. "Ranked Additive Utility Representations of Gambles: Old and New Axiomatizations," Journal of Risk and Uncertainty, Springer, vol. 30(1), pages 21-62, January.
    3. Michael H. Birnbaum & Jeffrey P. Bahra, 2012. "Separating response variability from structural inconsistency to test models of risky decision making," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 7(4), pages 402-426, July.
    4. Pope, Robin & Selten, Reinhard & Kube, Sebastian, 2009. "Nominalist Heuristics and Economic Theory," Bonn Econ Discussion Papers 17/2009, University of Bonn, Bonn Graduate School of Economics (BGSE).
    5. Michal Skořepa, 2007. "Zpochybnění deskriptivnosti teorie očekávaného užitku [Doubts about the descriptive validity of the expected utility theory]," Politická ekonomie, Prague University of Economics and Business, vol. 2007(1), pages 106-120.
    6. von Hagen, Jürgen & Kube, Sebastian & Kaiser, Johannes & Selten, Reinhard & Pope, Robin, 2006. "Prominent Numbers and Ratios in Exchange Rate Determination: Field and Laboratory Evidence," Bonn Econ Discussion Papers 29/2006, University of Bonn, Bonn Graduate School of Economics (BGSE).
    7. repec:cup:judgdm:v:2:y:2007:i::p:115-125 is not listed on IDEAS
    8. Jonathan W. Leland & Mark Schneider, 2016. "Salience, Framing, and Decisions under Risk, Uncertainty, and Time," Working Papers 16-08, Chapman University, Economic Science Institute.
    9. repec:cup:judgdm:v:16:y:2021:i:6:p:1324-1369 is not listed on IDEAS
    10. Birnbaum, Michael H. & Schmidt, Ulrich, 2010. "Allais paradoxes can be reversed by presenting choices in canonical split form," Kiel Working Papers 1615, Kiel Institute for the World Economy (IfW Kiel).
    11. Birnbaum, Michael H. & LaCroix, Adam R., 2008. "Dimension integration: Testing models without trade-offs," Organizational Behavior and Human Decision Processes, Elsevier, vol. 105(1), pages 122-133, January.
    12. Jonathan W. Leland & Mark Schneider & Nathaniel T. Wilcox, 2019. "Minimal Frames and Transparent Frames for Risk, Time, and Uncertainty," Management Science, INFORMS, vol. 65(9), pages 4318-4335, September.
    13. Bethany Weber, 2007. "The effects of losses and event splitting on the Allais paradox," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 2, pages 115-125, April.
    14. Birnbaum, Michael H., 2007. "Tests of branch splitting and branch-splitting independence in Allais paradoxes with positive and mixed consequences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 102(2), pages 154-173, March.
    15. repec:cup:judgdm:v:3:y:2008:i:7:p:528-546 is not listed on IDEAS
    16. Ryan K. Jessup & Lily B. Assaad & Katherine Wick, 2018. "Why choose wisely if you have already paid? Sunk costs elicit stochastic dominance violations," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 13(6), pages 575-586, November.
    17. repec:cup:judgdm:v:13:y:2018:i:6:p:575-586 is not listed on IDEAS
    18. Andreas Glöckner & Baiba Renerte & Ulrich Schmidt, 2020. "Violations of coalescing in parametric utility measurement," Theory and Decision, Springer, vol. 89(4), pages 471-501, November.
    19. Sudeep Bhatia & Graham Loomes & Daniel Read, 2021. "Establishing the laws of preferential choice behavior," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 16(6), pages 1324-1369, November.
    20. Michael H. Birnbaum & Ulrich Schmidt & Miriam D. Schneider, 2017. "Testing independence conditions in the presence of errors and splitting effects," Journal of Risk and Uncertainty, Springer, vol. 54(1), pages 61-85, February.
    21. Charles-Cadogan, G., 2018. "Losses loom larger than gains and reference dependent preferences in Bernoulli’s utility function," Journal of Economic Behavior & Organization, Elsevier, vol. 154(C), pages 220-237.
    22. Birnbaum, Michael H., 2006. "Evidence against prospect theories in gambles with positive, negative, and mixed consequences," Journal of Economic Psychology, Elsevier, vol. 27(6), pages 737-761, December.
    23. Michael H. Birnbaum, 2005. "Three New Tests of Independence That Differentiate Models of Risky Decision Making," Management Science, INFORMS, vol. 51(9), pages 1346-1358, September.
    24. Michael H. Birnbaum & Kathleen Johnson & Jay-Lee Longbottom, 2008. "Tests of Cumulative Prospect Theory with graphical displays of probability," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 3(7), pages 528-546, October.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2001.00122. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.