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A Theory of Vague Expected Utility

  • Paola Manzini

    (Queen Mary, University of London and IZA)

  • Marco Mariotti

    (Queen Mary, University of London)

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.

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File URL: http://econwpa.repec.org/eps/game/papers/0304/0304003.pdf
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Paper provided by EconWPA in its series Game Theory and Information with number 0304003.

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Length: 27 pages
Date of creation: 17 Apr 2003
Date of revision: 16 Jul 2004
Handle: RePEc:wpa:wuwpga:0304003
Note: Type of Document - pdf; prepared on IBM PC - PC-TEX; to print on HP; pages: 27; figures: included
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  2. Amartya Sen, 1996. "Maximization and the Act of Choice," Harvard Institute of Economic Research Working Papers 1766, Harvard - Institute of Economic Research.
  3. 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.
  4. 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.
  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 805-24, December.
  6. Kunreuther, Howard & Novemsky, Nathan & Kahneman, Daniel, 2001. "Making Low Probabilities Useful," Journal of Risk and Uncertainty, Springer, vol. 23(2), pages 103-20, September.
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