Showing papers in "Theory and Decision in 1991"
TL;DR: The main features of real-world problems for which the outranking approach is appropriate and the concept of outranking relations are described and the definition of such out ranking relations is given for the main ELECTRE methods.
Abstract: In the first part of this paper, we describe the main features of real-world problems for which the outranking approach is appropriate and we present the concept of outranking relations. The second part is devoted to basic ideas and concepts used for building outranking relations. The definition of such outranking relations is given for the main ELECTRE methods in Part 3. The final part of the paper is devoted to some practical considerations.
1,751 citations
TL;DR: No-arbitrage is the fundamental principle of economic rationality which unifies normative decision theory, game theory, and market theory as discussed by the authors, and it is viewed as a consequence of the adaptation of individual agents to the market.
Abstract: No-arbitrage is the fundamental principle of economic rationality which unifies normative decision theory, game theory, and market theory. In economic environments where preferences may be assumed to be convex and money is available as a medium of exchange, no-arbitrage supports the concepts of subjective expected utility maximization in personal decisions, competitive equilibria in capital markets and exchange economies, and correlated equilibria in noncooperative games. The arbitrage principle directly characterizes rationality at the market level; apparent optimizing behavior by individual agents is viewed as a consequence of their adaptation to the market. Concepts of equilibrium behavior in games and markets can thus be reconciled with the ideas that individual rationality is bounded, that agents use evolutionarily-shaped decision rules rather than numerical optimization algorithms, and that personal probabilities and utilities are inseparable and to some extent indeterminate. Risk-neutral probability distributions, interpretable as products of probabilities and marginal utilities, play a central role as observable quantities in economic systems.
104 citations
TL;DR: This article reported on the responses of 646 individuals to environmental risk information involving different forms of risk ambiguity and found that individuals' perceptions of the risk levels to which they are exposed are likely to be greater: (i) for more ambiguous risks, (ii) for risks for which the unfavorable risk evidence is presented last even when there is no temporal order.
Abstract: This paper reports on the responses of 646 individuals to environmental risk information involving different forms of risk ambiguity Recipients of more than one set of risk information do not simply average the risk levels provided Rather, a variety of aspects of the nature of the risks that are communicated influence their probabilistic beliefs Individuals' perceptions of the risk levels to which they are exposed are likely to be greater: (i) for more ambiguous risks, (ii) for risks for which the unfavorable risk evidence is presented last even when there is no temporal order, (iii) for risks for which the most unfavorable risk studies have been performed most recently, and (iv) for risks where there is asymmetry in the risk ambiguity that imposes substantial potential downside risks Although these effects are modest for the median individual, the potential for extreme responses that reflect only the most adverse or the most favorable piece of information provided is quite prevalent These findings are of interest more generally in that they indicate how individuals form their risk perceptions in the presence of risk ambiguity
95 citations
TL;DR: In this article, behavioral traits such as barn-door closing, expert/reliance effects, status quo bias, framing, and herding are employed in explaining financial flows to mutual funds, to new equities, across national boundaries, as well as movements in debt-equity ratios.
Abstract: The insights of descriptive decision theorists and psychologists, we believe, have much to contribute to our understanding of financial market macrophenomena. We propose an analytic agenda that distinguishes those individual idiosyncrasies that prove consequential at the macro-level from those that are neutralized by market processes such as poaching. We discuss five behavioral traits — barn-door closing, expert/reliance effects, status quo bias, framing, and herding — that we employ in explaining financial flows. Patterns in flows to mutual funds, to new equities, across national boundaries, as well as movements in debt-equity ratios are shown to be consistent with deviations from rationality.
62 citations
TL;DR: In this article, it is shown that Arrow had in mind a condition called regularity, which implies IIA, but which he could not state formally in his model because his model was not rich enough to permit certain distinctions that would have been necessary.
Abstract: In social choice theory there has been, and for some authors there still is, a confusion between Arrow'sIndependence of Irrelevant Alternatives (IIA) and somechoice consistency conditions. In this paper we analyze this confusion. It is often thought that Arrow himself was confused, but we show that this is not so. What happened was that Arrow had in mind a condition we callregularity, which implies IIA, but which he could not state formally in his model because his model was not rich enough to permit certain distinctions that would have been necessary. It is the combination of regularity and IIA that he discusses, and the origin of the confusion lies in the fact that if one uses a model that does not permit a distinction between regularity and IIA, regularity looks like a consistency condition, which it is not. We also show that the famous example that ‘proves’ that Arrow was confused does not prove this at all if it is correctly interpreted.
60 citations
TL;DR: Prize Lecture to the memory of Alfred Nobel, December 9, 1988 as mentioned in this paper, and this abstract was borrowed from another version of this item, which was later used in the 2016 edition of this article.
Abstract: Prize Lecture to the memory of Alfred Nobel, December 9, 1988.(This abstract was borrowed from another version of this item.)
50 citations
TL;DR: In this article, the authors define a protection premium for reduced uncertainty about protection efficiency when a stochastic variable enters the probability functionp(x) rather than the utility function, and examine the protection premium in ann-state discrete lottery and when uncertainty exists in both the probability and utility function.
Abstract: Endogenous risk implies an individual perceives he can influence the likelihood that a state of nature will occur. To add structure to endogenous risk models, I define a protection premium for reduced uncertainty about protection efficiency when a stochastic variable enters the probability functionp(x) rather than the utility function. For a binary lottery, a measure of aversion of uncertain protection efficiencyΓ(x) =-p″(x)/p′(x) is defined to unambiguously determine the effects of increased risk on an individual's voluntary contribution to public good supply earmarked to reduce the probability of an undesirable state. Finally, I examine the protection premium in ann-state discrete lottery and when uncertainty exists in both the probability and utility function.
33 citations
Abstract: Set-theoretic axiomatizations are given for a model of accounting with double classification, and a general core-model for accounting. The empirical status, and “representational” role of systems of accounts, as well as the problem of how to assign “correct” values to the goods accounted, are analyzed in precise terms. A net of special laws based on the core-model is described.
32 citations
TL;DR: A fuzzy behavior of preference is defined which allows us to build up two determinant fuzzy coalitions which will be the base of the planner's requirement and the link between pessimistic results and optimistic ones, and May's theorem of majority choice is defined.
Abstract: The basic purpose of this paper is to link both theorems of impossibility and existence by introducing fuzzy relations of preference and an exogeneous requirement, the planner's one, and then proving the fundamental part played by the extremist agents, leximin and leximax. In other words, to bring out the link between the planner's requirement and the difficulty of the transition from individual to collective, as well as the theoric relation between this requirement and the extremist agents, we define a fuzzy behavior of preference which allows us to build up two determinant fuzzy coalitions. These coalitions will be the base of the planner's requirement and the link between pessimistic results (Arrow's impossibility) and optimistic ones (May's theorem of majority choice).
27 citations
TL;DR: This paper showed that the value of perfect information will always be nonnegative if the agent satisfies a weak dominance axiom, which mitigates to some degree the normative objection to nonlinear utility theory implicit in Wakker's finding.
Abstract: Wakker (1988) has recently shown that, in contrast to an expected utility maximizer, the value of information will sometimes be negative for an agent who violates the independence axiom of expected utility theory. We demonstrate, however, that the value ofperfect information will always be nonnegative if the agent satisfies a weak dominance axiom. This result thus mitigates to some degree the normative objection to nonlinear utility theory implicit in Wakker's finding.
17 citations
TL;DR: In this paper, the authors argue that the critique of decisions is not necessarily a critique of preferences, since decision behavior is after all a "manifestation" of preferences and that practical reason is concerned with actions and not with preferences.
Abstract: This article presents the thesis that a critique of decisions is not necessarily (except in the trivial sense) a critique of preferences. This thesis runs contrary to the fundamental assumption in economic theory that a critique of decisions will always simultaneously be a critique of (subjective) preferences, since decision behavior is after all a ‘manifestation’ of preferences. If this thesis is right, then the paradigm of so-called ‘instrumental rationality’ is in serious trouble, not for external reasons but because of imminent inconsistencies. The thesis is developed in five parts: I. A preliminary remark to the economic theory of rationality in general. II. The cooperation problem as a challenge to the economic theory of rationality. III. An account of the most interesting attempt to save the theory. IV. A critique of that attempt. V. And the conclusion: practical reason is concerned with actions and not with preferences.
TL;DR: In this article, a functional relation exists between the choice probabilities over multidimensional options and the choice probability over the associated component un-dimensional options, and it is shown that if that function satisfies a marginalization property then it is essentially an arithmetic mean, and if the function satisfying a likelihood independence property, it is a weighted geometric mean The results are related to those on the combination of expert opinion and various probabilistic models in the choice literature are shown to have the geometric mean form
Abstract: In many choice situations, the options are multidimensional Numerous probabilistic models have been developed for such choices between multidimensional options and for the parallel choices determined by one or more components of such options In this paper, it is assumed that a functional relation exists between the choice probabilities over the multidimensional options and the choice probabilities over the associated component unidimensional options It is shown that if that function satisfies a marginalization property then it is essentially an arithmetic mean, and if the function satisfies a likelihood independence property then it is a weighted geometric mean The results are related to those on the combination of expert opinion, and various probabilistic models in the choice literature are shown to have the geometric mean form
TL;DR: An overview on the cardinal utility in its relations with the literature since the beginning of the XVIIIth century is given in this article, with an estimate of cardinal utility function for its negative values, thus completing the estimate of this function given in my 1984 Venice paper.
Abstract: This paper presents an overview on the concept of cardinal utility in its relations with the literature since the beginning of the XVIIIth century (Part I); an estimate of the cardinal utility function for its negative values, thus completing the estimate of this function for its positive values given in my 1984 Venice paper (Part II); and finally different applications to the theory of choices in the presence of risk and to the wealth transfer and tax questions (Part III).
TL;DR: This work presents various ordering algorithms for complete binary preferential structures that generalize the well-known numbering algorithm to the intransitive case and makes explicit value criteria and structures of human preference.
Abstract: Following an introduction to the merits of pairwise comparison methods, we present various ordering algorithms for complete binary preferential structures. These procedures generalize the well-known numbering algorithm to the intransitive case. A new form of independence of irrelevant alternatives is presented. Moreover, various other criteria and characterizations for these algorithms are presented. Aside from solving ranking problems and making explicit value criteria and structures of human preference, our algorithms are applicable to subjects such as task-sequencing and artificial intelligence projects.
TL;DR: In this article, the authors provide a concise logical and as a consequence conceptual, critique of dialectical reasoning and its place in planning and policy in the work of Richard O. Mason and lan I. Mitroff.
Abstract: This article provides a concise logical, and as a consequence conceptual, critique of dialectical reasoning and its place in planning and policy in the work of Richard O. Mason and lan I. Mitroff. Based on this critique, a construct called Strategic Forum is presented as an advance of the use of dialectical reasoning in the social and policy sciences. The place of Strategic Forum within group decision support systems is discussed.
TL;DR: In this article, the authors argue that Rawls's conception of justice would be highly detrimental to society because it would needlessly discourage talented people from using their talents for the benefit of society.
Abstract: A liberal democratic society must find a proper balance between respect for the basic equality of all human beings and respect for individual differences, including respect for individual excellence. Excessively equalitarian attitudes can be a major obstacle in accomplishing this. I first discuss the highly detrimental effects that such attitudes have had on American primary and secondary education. Then I discuss Rawls's suggestion to replace the traditional common-sense conception of justice, which he calls thesystem of liberal equality, with a much more equalitarian conception, which he calls thesystem of democratic equality. I argue that Rawls's conception of justice would be highly detrimental to society because it would needlessly discourage talented people from using their talents for the benefit of society.
TL;DR: In this article, the authors formalize Jeffrey's notion of ratifiability and show that the resulting formal structure can be obtained more directly by means of a theory of counterfactual beliefs.
Abstract: We formalize Jeffrey's (1983) notion of ratifiability and show that the resulting formal structure can be obtained more directly by means of a theory of counterfactual beliefs. One implication is that, under the appropriate formalizations, together with certain restrictions on beliefs, Bayesian decision theory and causal decision theory coincide.
TL;DR: In this paper, a particular choice rule over sets of alternatives under the Pareto rule is used, and every strategic misrevelation of preference is shown to be an improvement for all voters.
Abstract: This paper uses a particular choice rule over sets of alternatives under the Pareto rule. Starting from the sincere situation every strategic misrevelation of preference is shown to be an improvement for all voters. The existence of an equilibrium under successive misrepresentations by sincere voters is demonstrated.
TL;DR: A rational decision maker whose preferences satisfy Savage's axioms will minimize a Bayesian risk function: the expectation with respect to a revealed (or subjective) probability distribution of a loss (or negative utility) function over the consequences of the statistical decision problem as discussed by the authors.
Abstract: A rational statistical decision maker whose preferences satisfy Savage's axioms will minimize a Bayesian risk function: the expectation with respect to a revealed (or subjective) probability distribution of a loss (or negative utility) function over the consequences of the statistical decision problem. However, the nice expected utility form of the Bayesian risk criterion is nothing but a representation of special preferences. The subjective probability is defined together with the utility (or loss) function and it is not possible, in general, to use a given loss function - say a quadratic loss - and to elicit independently a subjective distribution.
TL;DR: In this paper, personal inventory decisions are defined as the decisions on quantity purchased which are made daily in such activities as grocery shopping, and the main purpose is to provide a quantitative discussion.
Abstract: By personal inventory decisions we mean the decisions on quantity purchased which are made daily in such activities as grocery shopping. This topic has previously been introduced only at the conceptual level. Hence our main purpose is to provide a quantitative discussion. Some specific models are pursued to solution. Surprisingly, a conjoint value function aggregator leads to indifference in replenishment quantity. Contrasts to the EOQ assumptions are highlighted.
TL;DR: In this article, the marginal worth vector of a game for an ordering is in the core, the game does not have to be a p.c. game, and the game can be played in any order.
Abstract: If marginal worth vector of a game for an ordering is in the core, the game does not have to be a p.c. game.
TL;DR: In this article, the authors investigate the conditions which guarantee the choice of Rawlsian solutions by players of unequal maximin positions bargaining under Nash rules, viz., subsymmetry and the location of the Pareto set, relating to the structure of the utility set.
Abstract: We investigate the conditions which guarantee the choice of Rawlsian solutions by players of unequal maximin positions bargaining under Nash rules. The conditions, viz., subsymmetry and the location of the Pareto set, relate to the structure of the utility set,S.