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A Theory of Vague Expected Utility

Author

Listed:
  • Manzini Paola

    (Queen Mary, University of London, pm210@st-andrews.ac.uk)

  • Mariotti Marco

    (Queen Mary, University of London, mm210@st-andrews.ac.uk)

Abstract

We propose a new theory of choice between lotteries, which combines an 'economic' view of decision making - based on a rational, though incomplete, ordering - with a 'psychological' view - based on heuristics. This theory can explain observed violations of EU theory, namely all cyclical patterns of choice as well as violations of independence.

Suggested Citation

  • Manzini Paola & Mariotti Marco, 2004. "A Theory of Vague Expected Utility," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-17, December.
    • Handle: RePEc:bpj:bejtec:v:topics.4:y:2004:i:1:n:10
    DOI: 10.2202/1534-598X.1168
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    References listed on IDEAS

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    1. Amartya Sen, 1997. "Maximization and the Act of Choice," Econometrica, Econometric Society, vol. 65(4), pages 745-780, July.
    2. Slovic, Paul & Finucane, Melissa & Peters, Ellen & MacGregor, Donald G., 2002. "Rational actors or rational fools: implications of the affect heuristic for behavioral economics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 31(4), pages 329-342.
    3. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    4. Kunreuther, Howard & Novemsky, Nathan & Kahneman, Daniel, 2001. "Making Low Probabilities Useful," Journal of Risk and Uncertainty, Springer, vol. 23(2), pages 103-120, September.
    5. Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 805-824, December.
    6. Rubinstein, Ariel, 1988. "Similarity and decision-making under risk (is there a utility theory resolution to the Allais paradox?)," Journal of Economic Theory, Elsevier, vol. 46(1), pages 145-153, October.
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    Citations

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    Cited by:

    1. Pierre-Yves Geoffard & Stephane Luchini, 2007. "Changing time and emotions," Working Papers halshs-00587792, HAL.
    2. Harvey Lederman, 2023. "Incompleteness, Independence, and Negative Dominance," Papers 2311.08471, arXiv.org.
    3. Paola Manzini & Marco Mariotti, 2008. "On the Representation of Incomplete Preferences Over Risky Alternatives," Theory and Decision, Springer, vol. 65(4), pages 303-323, December.

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    More about this item

    Keywords

    incomplete preference relation; cyclical preferences; expected utility;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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