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How (Not) to Do Decision Theory

Author

Listed:
  • Eddie Dekel
  • Barton L. Lipman

    (Economics Department, Northwestern University, Evanston, Illinois 60208, and School of Economics, Tel Aviv University, Tel Aviv, 69978 Israel
    Department of Economics, Boston University, Boston, Massachusetts 02215)

Abstract

We discuss the goals and means of positive decision theory and the implications for how to do decision theory. We argue that the goal of positive economic theory generally is to provide predictions and understanding and that representation theorems and other results of decision theory should be seen as ways to achieve these goals. We also argue that the interpretation of a model is relevant to whether and how we use the model, that psychological considerations are not necessary for useful decision theory but can be helpful, and that nonchoice data, interpreted properly, can be valuable in predicting choice and therefore should not be ignored.

Suggested Citation

  • Eddie Dekel & Barton L. Lipman, 2010. "How (Not) to Do Decision Theory," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 257-282, September.
    • Handle: RePEc:anr:reveco:v:2:y:2010:p:257-282
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev.economics.102308.124328
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    Cited by:

    1. David Dillenberger & Andrew Postlewaite & Kareen Rozen, 2011. "Optimism and Pessimism with Expected Utility, Third Version," PIER Working Paper Archive 13-001, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 26 Dec 2012.
    2. Minardi, Stefania & Savochkin, Andrei, 2015. "Preferences with grades of indecisiveness," Journal of Economic Theory, Elsevier, vol. 155(C), pages 300-331.
    3. Moscati, Ivan, 2021. "On the recent philosophy of decision theory," LSE Research Online Documents on Economics 115039, London School of Economics and Political Science, LSE Library.
    4. David Dillenberger & Andrew Postlewaite & Kareen Rozen, 2011. "Optimism and Pessimism with Expected Utility, Second Version," PIER Working Paper Archive 12-031, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 10 Aug 2012.
    5. Cerreia-Vioglio, Simone & Dillenberger, David & Ortoleva, Pietro, 2020. "An explicit representation for disappointment aversion and other betweenness preferences," Theoretical Economics, Econometric Society, vol. 15(4), November.
    6. Horan, Sean, 2016. "A simple model of two-stage choice," Journal of Economic Theory, Elsevier, vol. 162(C), pages 372-406.
    7. Cherepanov, Vadim & Feddersen, Timothy & ,, 2013. "Rationalization," Theoretical Economics, Econometric Society, vol. 8(3), September.
    8. Rohan Dutta & Sean Horan, 2015. "Inferring Rationales from Choice: Identification for Rational Shortlist Methods," American Economic Journal: Microeconomics, American Economic Association, vol. 7(4), pages 179-201, November.
    9. Itzhak Gilboa & Andrew Postlewaite & Larry Samuelson & David Schmeidler, 2011. "Economic Models as Analogies, Second Version," PIER Working Paper Archive 12-030, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 31 Jul 2012.
    10. David Dillenberger & Andrew Postlewaite & Kareen Rozen, 2011. "Optimism and Pessimism with Expected Utility, Fourth Version," PIER Working Paper Archive 13-068, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Nov 2013.
    11. David Dillenberger & Andrew Postlewaite & Kareen Rozen, 2017. "Optimism and Pessimism with Expected Utility," Journal of the European Economic Association, European Economic Association, vol. 15(5), pages 1158-1175.
    12. Matthew D. Rablen, 2023. "Loss Aversion, Risk Aversion, and the Shape of the Probability Weighting Function," Working Papers 2023013, The University of Sheffield, Department of Economics.
    13. Ivan Moscati, 2022. "Behavioral and heuristic models are as-if models too — and that’s ok," BAFFI CAREFIN Working Papers 22177, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    14. David Dillenberger & Andrew Postlewaite & Kareen Rozen, 2013. "Optimism and Pessimism with Expected Utility, Fifth Version," PIER Working Paper Archive 15-009, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 23 Feb 2015.
    15. Denis Bouyssou & Thierry Marchant & Marc Pirlot, 2023. "A theoretical look at Electre Tri-nB and related sorting models," 4OR, Springer, vol. 21(1), pages 1-31, March.
    16. Itzhak Gilboa & Andrew Postlewaite & Larry Samuelson & David Schmeidler, 2014. "Economic Models as Analogies," Economic Journal, Royal Economic Society, vol. 124(578), pages 513-533, August.
    17. Beinhocker, Eric & Dhami, Sanjit, 2019. "The Behavioral Foundations of New Economic Thinking," INET Oxford Working Papers 2019-13, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    18. Itzhak Gilboa & Andrew Postlewaite & Larry Samuelson & David Schmeidler, 2019. "What are axiomatizations good for?," Theory and Decision, Springer, vol. 86(3), pages 339-359, May.
    19. Sebastian Schweighofer-Kodritsch, 2024. "Bounded Rationality, Beliefs, and Behavior," Berlin School of Economics Discussion Papers 0037, Berlin School of Economics.
    20. Spiegler, Ran, 2011. "‘But Can'T We Get The Same Thing With A Standard Model?’ Rationalizing Bounded-Rationality Models," Economics and Philosophy, Cambridge University Press, vol. 27(1), pages 23-43, March.
    21. Zachary Breig, 2020. "Prediction and Model Selection in Experiments," The Economic Record, The Economic Society of Australia, vol. 96(313), pages 153-176, June.

    More about this item

    Keywords

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    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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