Error-induced certainty equivalents: A set-theoretical approach to choice under risk
- Francisco Javier Santos Arteaga 1
- Debora Di Caprio 2
-
1
Universidad Complutense de Madrid
info
-
2
University of Trento
info
Argitalpen urtea: 2008
Alea: 3
Orrialdeak: 1121-1131
Mota: Artikulua
Laburpena
We consider the existence problem of errors in decision making processes under risk from a set-theoretical perspective. Choice adjustmenterrors have been identified but never formalized by the experimentaleconomics/decision theory literature. We show that choice adjustmenterrors can be naturally derived from gaps in the range of the utilityfunctions of decision makers. Introducing the concept of “error-inducedcertainty equivalent”, we account for the intrinsic generation of errorapproximations in any decision making process under risk. Finally, theexistence problem of minimal error functions is shown to be equivalent to that of determining best approximations to the expected utilityvalues defined by the corresponding decision processes.
Erreferentzia bibliografikoak
- R. Engelking, General Topology, Heldermann Verlag, Berlin, 1989.
- D. Harless and C. Camerer, The predictive utility of generalized expected utility theories, Econometrica, 62 (1994), 1251 - 1290.
- J.D. Hey and C. Orme, Investigating generalizations of expected utility theory using experimental data, Econometrica, 62 (1994) 1291 - 1326.
- G. Loomes and R. Sugden, Incorporating a stochastic element into decision theories, European Economic Review, 39 (1995) 641 - 648.
- A. Mas-Colell, M.D. Whinston and J.R. Green, Microeconomic Theory, Oxford University Press, New York, 1995.
- J. Rieskamp, J. Busemeyer and B. Mellers, Extending the bounds of rationality: Evidence and theories of preferential choice, Journal of Economic Literature, XLIV (2006) 631 - 661.
- C. Starmer, Developments in non-expected utility theory: The hunt for a descriptive theory of choice under risk, Journal of Economic Literature, XXXVIII (2000) 332 - 382.
- P. Wakker, Continuity of preference relations for separable topologies, International Economic Review, 29 (1988) 105 - 110.