Consistency of choice is a fundamental and recurring theme in decision theory, social choice theory, behavioral economics, and psychological sciences. The purpose of this paper is to study the consistency of choice independent of the particular decision model at hand. Consistency is viewed as an inherently logical concept that is fundamentally void of connotation and is thus disentangled from traditional rationality or consistency conditions imposed on decision models. The proposed formalization of consistency takes two forms: internal consistency, which refers to (...) the property that a choice model does not generate contradictory statements; and semantic consistency, which refers to the idea that a theory’s predictions are valid with respect to some observed data. In addressing semantic consistency, the relationship between theory and data is analyzed in terms of so-called duality mappings, which allow a passage between the two universes in a way that consistency is preserved. The formalization of consistency concepts relies on adapting the revealed preference theory to the context-dependent setting. The paper concludes by discussing the implications of the proposed framework and how it relates to classical revealed preference theory and other formalizations of the relationship between the theory and reality of choice. (shrink)

Many scientific models lack an established representation relation to actual targets and instead refer to merely possible processes, background conditions, and results. This article shows how such models can be appraised. On the basis of the discussion of how-possibly explanations, five types of learning opportunities are distinguished. For each of these types, an example—from economics, biology, psychology, and sociology—is discussed. Contexts and purposes are identified in which the use of a model offers a genuine opportunity to learn. These learning opportunities (...) offer novel justifications for modeling practices that fall between the cracks of standard representationalist appraisals of models. (shrink)

The paper deals with the mysterious persistence of the Chicago approach as the main analytical engine driving antitrust enforcement in American courts. While the approach has been almost completely replaced in contemporary industrial economics by the so-called Post-Chicago view, Chicago arguments still permeate antitrust case law at all judicial levels. Chicago’s rise to dominance was allegedly due to the superiority of its economic analysis. Why did the Post-Chicago approach, which is supposed to have a clear analytical edge, fail to do (...) the same? The paper offers a series of explanations: though none is completely exhaustive, each may account for a bit of the story. More generally, the current situation of antitrust case law offers valuable methodological insight on themes such as how economists persuade or the impact of the different professional practices in the diffusion of economic ideas. (shrink)

This article presents the results of an experiment that completely measures the utility function and probability weighting function for different positive and negative monetary outcomes, using a representative sample of N = 1,935 from the general public. The results confirm earlier findings in the lab, suggesting that utility is less pronounced than what is found in classical measurements where expected utility is assumed. Utility for losses is found to be convex, consistent with diminishing sensitivity, and the obtained loss-aversion coefficient of (...) 1.6 is moderate but in agreement with contemporary evidence. The estimated probability weighting functions have an inverse-S shape and they imply pessimism in both domains. These results show that probability weighting is also an important phenomenon in the general population. Women and lower educated individuals are found to be more risk averse, in agreement with common findings. In contrast to previous studies that ascribed gender differences in risk attitudes solely to differences in the degree utility curvature, however, our results show that this finding is primarily driven by loss aversion and, for women, also by a more pessimistic psychological response toward the probability of obtaining the best possible outcome. (shrink)

Much of economics is built on the assumption that individuals are driven by self-interest and economic development is an outcome of the free play of such individuals. On the few occasions that the existence of altruism is recognized in economics, the tendency is to build this from the axiom of individual selfishness. The aim of this paper is to break from this tradition and to treat as a primitive that individuals are endowed with the ‘cooperative spirit’, which allows them to (...) work in their collective interest, even when that may not be in their self-interest. The paper tracks the interface between altruism and group identity. By using the basic structure of a Prisoner's Dilemma game among randomly picked individuals and building into it assumptions of general or in-group altruism, the paper demonstrates how our selfish rationality interacts with our innate sense of cooperation. The model is used to outline circumstances under which cooperation will occur and circumstances where it will break down. The paper also studies how sub-groups of a society can form cooperative blocks, whether to simply do better for themselves or exploit others. (shrink)

Deterrence is the backbone of military strategy. Dissuading an opponent from taking a specific action by threat of violence is the definition of deterrence. From the outset of the Cold War there has been a strong link between the study of deterrence and game theoretic analysis. There are compelling epistemic reasons for studying deterrence as a game. By doing so, the strategic interaction between actors is placed at the centre of the analysis, mapping the possible outcomes and revealing the strategies (...) available to the actors. Discussions about various models’ appropriateness and model comparison therefore play a central role in deterrence research; from underlying assumptions and deterrence representation to theory and evidence. This dissertation treats aspects of all of these topics. Article I, “Prospects of Deterrence – Deterrence Theory – Representation and Evidence”, analyses the relationship between model and theory and what happens to a deterrence theory when the rationality assumption is switched to a prospect theoretical utility function. Article II, “A Misfit Model – Bounded Rationality and Deterrence Representation”, defends and remodels Schelling’s idea of irrational threats for effective deterrence. Article III, “Comparable Deterrence – Target, Criteria and Purpose”, treats the issue of how one can compare game theoretic models with one another and proposes a meta-model for how this can be done. Article IV, “Deterring the Dauntless – Appraising the Effects of Naval Deterrence against the Somali Piracy”, estimates whether and to what extent Somali piracy was deterred by the naval intervention. (shrink)

The backward induction controversy in game theory flared up and then practically ended within a decade – the 1990s. The protagonists, however, did not converge on an agreement about the source of the controversy. Why was this the case, if opposing sides had access to the same modelling techniques and empirical facts? In this paper I offer an explanation for this controversy and its unsettled end. The answer is not to be found in the modelling claims made by the opposing (...) protagonists, but in the tacit metaphors they operate under. Aristotle defined metaphor as giving a 'thing a name that belongs to something else' (Poetica, 1457b). The meaning of metaphors has not changed much since then – in contrast to models which are comparatively new, and still not well-understood, scientific tools. The controversy of backward induction in game theory provides a test bed for the explanatory power of metaphors. This paper frames the controversy in terms of metaphor choice to provide a common framework for the protagonists. This results in the identification of three different domains – mathematical logic, game theory and the world – each connected to the other via different metaphors. The controversy around backward induction is placed in, and tentatively explained by, this framework. (shrink)

For me, economics is a collection of ideas and conventions which economists accept and use to reason with. Namely, it is a culture. Behavioral economics represents a transformation of that culture. Nonetheless, as pointed out by Camerer and Loewenstein (2003), its methods are pretty much the same as those introduced by the Game Theory revolution. At the core of most models in Behavioral Economics there are still agents who maximize a preference relation over some space of consequences and the solution (...) in most cases still involves standard equilibrium concepts. However, the behavioral economists are not committed to what is usually referred to as rational motivations. An economic fable (or a model as we would call it) that has at its core fairness, envy, present-bias and the like is by now not only permitted but even preferred. (shrink)

Drawing from the "anti-philosophies" of Nietzsche and Wittgenstein, and deploying a methodology which synthesizes critical theory with evolutionary psychology and contemporary cognitive science, our analysis demonstrates: 1. Justifications, in any context, are oriented towards social manipulation and bear no relation to any "cognitive processes." 2. The role of logic is overstated, both with regards to our justifications, and also our cognition. 3. Truth and falsity are socio-linguistic functions which have no bearing on any "objective reality." Insofar as these claims are (...) correct, the methods and aims (both normative and descriptive) of "classical epistemology" are invalidated. We offer up a proposal as to what a more useful/meaningful epistemology might look like, exploring how such a reformulation might affect conceptions of "knowledge" and "rationality.". (shrink)