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Boundedly rational expected utility theory

Author

Listed:
  • Daniel Navarro-Martinez

    (Pompeu Fabra University
    Barcelona Graduate School of Economics)

  • Graham Loomes

    (University of Warwick)

  • Andrea Isoni

    (University of Warwick
    University of Cagliari)

  • David Butler

    (Griffith University)

  • Larbi Alaoui

    (Pompeu Fabra University
    Barcelona Graduate School of Economics)

Abstract

We build a satisficing model of choice under risk which embeds Expected Utility Theory (EUT) into a boundedly rational deliberation process. The decision maker accumulates evidence for and against alternative options by repeatedly sampling from her underlying set of EU preferences until the evidence favouring one option satisfies her desired level of confidence. Despite its EUT core, the model produces patterns of behaviour that violate standard EUT axioms, while at the same time capturing systematic relationships between choice probabilities, response times and confidence judgments, which are beyond the scope of theories that do not take deliberation into account.

Suggested Citation

  • Daniel Navarro-Martinez & Graham Loomes & Andrea Isoni & David Butler & Larbi Alaoui, 2018. "Boundedly rational expected utility theory," Journal of Risk and Uncertainty, Springer, vol. 57(3), pages 199-223, December.
    • Handle: RePEc:kap:jrisku:v:57:y:2018:i:3:d:10.1007_s11166-018-9293-3
    DOI: 10.1007/s11166-018-9293-3
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    3. Ronald Klingebiel & Feibai Zhu, 2023. "Ambiguity aversion and the degree of ambiguity," Journal of Risk and Uncertainty, Springer, vol. 67(3), pages 299-324, December.
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    7. Duffy, Sean & Gussman, Steven & Smith, John, 2019. "Judgments of length in the economics laboratory: Are there brains in choice?," MPRA Paper 93126, University Library of Munich, Germany.

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    More about this item

    Keywords

    Expected utility; Bounded rationality; Deliberation; Probabilistic choice; Confidence; Response times;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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