This book offers a rigorous, concise, and nontechnical introduction to some of the fundamental insights of rational choice theory. It draws on formal theories of microeconomics, decision making, games, and social choice, and on ideas developed in philosophy, psychology, and sociology. Itzhak Gilboa argues that economic theory has provided a set of powerful models and broad insights that have changed the way we think about everyday life. He focuses on basic insights of the rational choice paradigm--the general conceptualization (...) rather than a particular theory--that survive recent critiques of economic theory's various failures. Gilboa explains the main concepts in language accessible to the nonspecialist, offering a nonmathematical guide to some of the main ideas developed in economic theory in the second half of the twentieth century. Chapters cover feasibility and desirability, utility maximization, constrained optimization, expected utility, probability and statistics, aggregation of preferences, games and equilibria, free markets, and rationality and emotions. Online appendixes offer additional material, including a survey of relevant mathematical concepts. (shrink)

Gilboa and Schmeidler provide a paradigm for modelling decision making under uncertainty. Unlike the classical theory of expected utility maximization, case-based decision theory does not assume that decision makers know the possible 'states of the world' or the outcomes, let alone the decision matrix attaching outcomes to act-state pairs. Case-based decision theory suggests that people make decisions by analogies to past cases: they tend to choose acts that performed well in the past in similar situations, and to avoid acts (...) that performed poorly. It is an alternative to expected utility theory when both states of the world and probabilities are neither given in the problem nor can be easily constructed. The authors describe the general theory and its relationship to planning, repeated choice problems, inductive inference, and learning; they highlight its mathematical and philosophical foundations and compare it with expected utility theory as well as with rule-based systems. (shrink)

A nontechnical, concise, and rigorous introduction to the rational choice paradigm,focusing on basic insights applicable in fields ranging from economics to philosophy.

This note argues that, under some circumstances, it is more rational not to behave in accordance with a Bayesian prior than to do so. The starting point is that in the absence of information, choosing a prior is arbitrary. If the prior is to have meaningful implications, it is more rational to admit that one does not have sufficient information to generate a prior than to pretend that one does. This suggests a view of rationality that requires a compromise between (...) internal coherence and justification, similarly to compromises that appear in moral dilemmas. Finally, it is argued that Savage's axioms are more compelling when applied to a naturally given state space than to an analytically constructed one; in the latter case, it may be more rational to violate the axioms than to be Bayesian. (shrink)

Economic theory reduces the concept of rationality to internal consistency. As far as beliefs are concerned, rationality is equated with having a prior belief over a “Grand State Space”, describing all possible sources of uncertainties. We argue that this notion is too weak in some senses and too strong in others. It is too weak because it does not distinguish between rational and irrational beliefs. Relatedly, the Bayesian approach, when applied to the Grand State Space, is inherently incapable of describing (...) the formation of prior beliefs. On the other hand, this notion of rationality is too strong because there are many situations in which there is not sufficient information for an individual to generate a Bayesian prior. It follows that the Bayesian approach is neither sufficient not necessary for the rationality of beliefs. (shrink)

Do axiomatic derivations advance positive economics? If economists are interested in predicting how people behave, without a pretense to change individual decision making, how can they benefit from representation theorems, which are no more than equivalence results? We address these questions. We propose several ways in which representation results can be useful and discuss their implications for axiomatic decision theory.

We suggest a model that describes how counterfactuals are constructed and justified. The model can describe how counterfactual beliefs are updated given the unfolding of actual history. It also allows us to examine the use of counterfactuals in prediction, and to show that a logically omniscient reasoner gains nothing from using counterfactuals for prediction.

It is argued that, contrary to a rather prevalent view within economic theory, rationality does not imply Bayesianism. The note begins by defining these terms and justifying the choice of these definitions, proceeds to survey the main justification for this prevalent view, and concludes by highlighting its weaknesses.

We assume that people have a need to make statements, and construct a model in which this need is the sole determinant of voting behavior. In this model, an individual selects a ballot that makes as close a statement as possible to her ideal point, where abstaining from voting is a possible (null) statement. We show that in such a model, a political system that adopts approval voting may be expected to enjoy a significantly higher rate of participation in elections (...) than a comparable system with plurality rule. (shrink)

The interpretation of economic theories varies along several dimensions. First, models can describe reality, illustrate a recommended state of affairs, or analyze the structure and implications of a theory. Second, theories can be used for prediction or for explanation. Third, theories can relate to reality in a rule-based or case-based manner. Fourth, theories can be statements about economic reality or about the act of economic reasoning itself. Fifth, theories can offer predictions or merely critique reasoning. We argue that theories are (...) often open to multiple interpretations which can shift depending on the context in which the theory is applied, the surrounding economic literature, and the argument made by the interpreter. (shrink)

Volume 26, Issue 4, December 2019, Page 389-392.

It has been argued that Pareto-improving trade is not as compelling under uncertainty as it is under certainty. The former may involve agents with different beliefs, who might wish to execute trades that are no more than betting. In response, the concept of no-betting Pareto dominance was introduced, requiring that putative Pareto improvements must be rationalizable by some common probabilities, even though the participants’ beliefs may differ. In this paper, we argue that this definition might be too narrow for use (...) when agents are not Bayesian. Agents who face ambiguity might wish to trade in ways that can be justified by common ambiguity, though not necessarily by common probabilities. We accordingly extend the notion of no-betting Pareto dominance to characterize trades than are “no-betting Pareto” ranked according to the maxmin expected utility model. (shrink)

We suggest to define objective probabilities by similarity-weighted empirical frequencies, where more similar cases get a higher weight in the computation of frequencies. This formula is justified intuitively and axiomatically, but raises the question, which similarity function should be used? We propose to estimate the similarity function from the data, and thus obtain objective probabilities. We compare this definition to others, and attempt to delineate the scope of situations in which objective probabilities can be used.

We suggest to define objective probabilities by similarity-weighted empirical frequencies, where more similar cases get a higher weight in the computation of frequencies. This formula is justified intuitively and axiomatically, but raises the question, which similarity function should be used? We propose to estimate the similarity function from the data, and thus obtain objective probabilities. We compare this definition to others, and attempt to delineate the scope of situations in which objective probabilities can be used.

A decision maker has to choose one of several random variables whose distributions are not known. As a Bayesian, she behaves as if she knew the distributions. In this paper we suggest an axiomatic derivation of these (subjective) distributions, which is more economical than the derivations by de Finetti or Savage. Whereas the latter derive the whole joint distribution of all the available random variables, our approach derives only the marginal distributions. Correspondingly, the preference questionnaire needed in our case is (...) less smaller. (shrink)

This note documents Aumann's reason for omitting the “empty shells” argument for the common prior assumption from the final version of “Correlated Equilibrium as an Expression of Bayesian Rationality.” It then continues to discuss the argument and concludes that rational entities cannot learn their own identity; if they do not know it a priori, they never will.

Coordination games often have multiple equilibria. The selection of equilibrium raises the question of belief formation: how do players generate beliefs about the behavior of other players? This article takes the view that the answer lies in history, that is, in the outcomes of similar coordination games played in the past, possibly by other players. We analyze a simple model in which a large population plays a game that exhibits strategic complementarities. We assume a dynamic process that faces different populations (...) with such games for randomly selected values of a parameter. We introduce a belief formation process that takes into account the history of similar games played in the past, not necessarily by the same population. We show that when history serves as a coordination device, the limit behavior depends on the way history unfolds, and cannot be determined from a-priori considerations. (shrink)

In recent years the understanding of the cognitive foundations of economic behavior has become increasingly important. This volume contains contributions from such leading scholars as Adam Brandenburger, Michael Bacharach and Patrick Suppes. It will be of great interest to academics and researchers involved in the field of economics and psychology as well as those interested in political economy more generally.

Economic theory reduces the concept of rationality to internal consistency. As far as beliefs are concerned, rationality is equated with having a prior belief over a “Grand State Space”, describing all possible sources of uncertainties. We argue that this notion is too weak in some senses and too strong in others. It is too weak because it does not distinguish between rational and irrational beliefs. Relatedly, the Bayesian approach, when applied to the Grand State Space, is inherently incapable of describing (...) the formation of prior beliefs. On the other hand, this notion of rationality is too strong because there are many situations in which there is not sufficient information for an individual to generate a Bayesian prior. It follows that the Bayesian approach is neither sufficient not necessary for the rationality of beliefs. (shrink)

Book Reviews Olivier Roy, Economics and Philosophy, FirstView Article.

In his exciting and original view of the universe, Itzhak Bentov has provided a new perspective on human consciousness and its limitless possibilities. Widely known and loved for his delightful humor and imagination, Bentov explains the familiar world of phenomena with perceptions that are as lucid as they are thrilling. He gives us a provocative picture of ourselves in an expanded, conscious, holistic universe. _.

Depression is associated with increased maintenance of negative affect (NA) and reduced – blunted and short-lived – maintenance of positive affect (PA). Studies have focused on factors associated with the maintenance of NA, specifically, the emotion regulation strategy of brooding and the capacity to hold negative affective experiences in working memory (WM). Despite its theoretical importance, less attention has been given to factors associated with the maintenance of PA in depression. This study aims to synthesise factors playing a role in (...) the maintenance of both NA and PA. Specifically, we used self-reported assessment of PA and NA regulation and performance-based measures of NA and PA processing in WM to predict depressive symptoms severity. Participants (N = 219) completed the Affective Maintenance Task (AMT, Mikels et al., Citation2008), which provided performance-based measures of PA and NA maintenance, and filled out questionnaires assessing brooding, positive rumination and depressive severity. Brooding, positive rumination and AMT-based measures of positive (but not negative) affective information processing were independently associated with depressive symptoms. We highlight the unique contributions of PA processing, as well as of self-reported emotion regulation strategies in understanding depression maintenance. (shrink)

This paper examines the adequacy of an evolutionary-oriented notion of rationality—ecological rationality—that has recently been proposed in economics. Ecological rationality is concerned with what it is rational to do, and in this sense is a version of what philosophers call ‘practical rationality’. Indeed, the question of the adequacy of ecological rationality as it is understood in the paper, is the question of whether ecological rationality is a genuine notion of practical rationality. The paper first explicates and motivates the notion of (...) ecological rationality by explicating the notion of practical rationality, grounding ecological rationality in an evolutionary approach to the emotions which is mainly illustrated by the example of fear, and outlining the reasons adduced in economics for generalizing ecological rationality beyond the emotions. The paper then argues that the raison d’être of practical rationality is first and foremost a specific role it plays in the explanation of behavior, or in telling why it has occurred. Finally, based on –, the paper argues that ecological rationality lacks a constitutive feature of practical rationality—namely, normativity—which is related to the latter’s basic explanatory role, and thus cannot be considered a genuine notion of practical rationality. While the paper focuses on the economic version of ecological rationality, its conclusions apply just as well to other, related, versions of the ecological notion that have been proposed in biology and evolutionary psychology. (shrink)

Multicellular organisms are ensembles of quasi-two-dimensional structures (sheets) of various kinds. Why should the development of all organisms be mediated by a quasi-two-dimensional structure? Why does such development avoid a direct confrontation with the third dimension? In this paper, we accept the challenge of addressing this question from the perspective of computational geometry and suggest that the construction of three-dimensional organisms may be explained by the constraints imposed on a bottom-up construction process.

The majority of evidence on social anxiety -linked attentional biases to threat comes from research using facial expressions. Emotions are, however, communicated through other channels, such as voice. Despite its importance in the interpretation of social cues, emotional prosody processing in SA has been barely explored. This study investigated whether SA is associated with enhanced processing of task-irrelevant angry prosody. Fifty-three participants with high and low SA performed a dichotic listening task in which pairs of male/female voices were presented, one (...) to each ear, with either the same or different prosody. Participants were instructed to focus on either the left or right ear and to identify the speaker’s gender in the attended side. Our main results show that, once attended, task-irrelevant angry prosody elicits greater interference than does neutral prosody. Surprisingly, high socially anxious participants were less prone to distraction from attended-angry prosody than were low socially anxious individuals. These findings emphasise the importance of examining SA-related biases across modalities. (shrink)

This unique longitudinal study examines the state of work centrality and other life areas in Israel among the same individuals over a 12-year period. A new representative sample of the Israeli labour force in 1992–93 assists us in exploring whether the changes occurred by cohort, life course or period effect. The restudied sample maturation led to a decrease in the importance of leisure, while the importance of work, family, community and religion remained stable. The increase of work centrality between the (...) 1980s and the 1990s was found to be influenced by period effect; there was no evidence of a life course or cohort effect on work centrality, while life course effect was found on the importance of community. In contrast to findings from other countries showing that young people attributed relatively high importance to leisure and relatively less importance to work, cohort effect regarding the latter was not observed in Israel. There, young people in the 1990s tended to view work and leisure as important as their predecessors did in the 1980s. Compared with research findings from the United States, Germany and Japan, work centrality in Israel was higher and more stable. (shrink)

Reverse Inference ( RI ) is an imaging-based type of inference from brain states to mental states, which has become highly widespread in neuroscience, most especially in neuroeconomics. Recent critical studies of RI may be taken to show that, if cautiously used, RI can help achieve research goals that may be difficult to achieve by way of behavior-based procedures alone. But can RI exceed the limits of these procedures and achieve research goals that are impossible for them to achieve alone? (...) By way of answering this question we show that a conception of the mind—type identity—under which the answer is in the positive, is untenable for reasons that strongly support another conception of the mind—functionalism—under which the answer must be in the negative. On this basis we then conclude that RI cannot exceed the limits of behavior-based procedures in cognitive psychology. (shrink)

Both economists and psychologists are interested in understanding decision making under uncertainty. Yet, they rely on different concepts to analyse human behaviour: economists use economic preference parameters rooted in utility theory, while psychologists use personality traits to describe responses to uncertain situations. Using a large sample of university students, this study examines and contrasts five economic preference parameters and six psychological personality traits that are commonly used to study individuals’ attitudes towards uncertainty. A novelty of this paper is including both (...) the economic concept of ambiguity aversion as well as the personality trait of ambiguity intolerance. We find that standard economic preference measures based on incentivized choice tasks seem to capture rather different characteristics than psychological personality traits. In contrast, economic preference measures obtained from self-assessment questions appear more related to personality traits, especially ambiguity intolerance. (shrink)