Dynamic decision making under ambiguity:a portfolio choice experiment

Neoclassical economic theory assumes that when agents tackle dynamic decisions under ambiguity, preferences are represented by Expected Utility and prior beliefs are updated according to Bayes rule, upon the arrival of partial information. Nevertheless, when one considers non-neutral ambiguity attitudes, either the axiom of dynamic consistency or of consequentialism should be relaxed. We report the results of a new experiment, designed to investigate how people behave in a dynamic choice problem under ambiguity, where decisions are made both before and after the resolution of some uncertainty. We study which of the two rationality axioms people violate, along with the question of whether this violation is part of a conscious planning strategy or not. The combination of the two, allows us to classify subjects to three behavioural types: resolute, naïve and sophisticated. Using data from a portfolio choice experiment where ambiguity is represented in a transparent and non-manipulable way, we cannot reject the hypothesis of Bayesian updating for half of our experimental population. For ambiguity non-neutral subjects, we find that the majority are sophisticated, a few are naïve and few are resolute

ESSAYS ON DYNAMIC DECISION MAKING UNDER AMBIGUITY

The first chapter presents an extended survey of the literature on dynamic decision making under ambiguity, focusing both on the theoretical modelling and the available empirical findings. The second chapter, experimentally investigates individual choice under ambiguity in a dynamic setting. Assuming that people have non-Expected Utility preferences, the study is aiming to understand how people update their prior beliefs in a sequential problem. Three different types of decision makers are identified: resolute, naive and sophisticated. In the third chapter, three alternative ways to model stochastic decision making when the choice variable is continuous are presented. These specifications are then tested with data collected from a tailor-made economic experiment

ISIPTA'07: Proceedings of the Fifth International Symposium on Imprecise Probability: Theories and Applications

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Preferences, counterfactuals and maximisation: Reasoning in game theory.

This thesis explores two kinds of foundational issues in game theory. The first is concerned with the interpretation of the basic structure of a game, especially the definitions of outcomes and payoffs. This discussion leads to the second issue; namely the nature of solution concepts and their relation to both explicit and implicit assumptions in game theory concerning hypothetical reasoning. Interpreting utility functions in game theory, I argue that the notion of revealed preferences is ill-suited for counterfactual reasoning and for taking account of the implicit normativity of instrumental rationality. An alternative interpretation is outlined that treats preferences as determinants of choice. Accordingly, outcomes have to be individuated so as to capture everything that matters to an agent. I consider whether this is problematic when properties of outcomes depend on choice processes themselves. Turning to a decision theoretic problem, I question Verbeek's (2001) claim that modal outcome individuation conflicts with axioms of consequentialism. Next, I critically assess Rabin's (1993) model of fairness equilibria. Hypothesising about unilateral deviation is shown to be incompatible with belief-dependent utility definitions. Counterfactuals in games are then analysed more generally. It proves to be crucial for solution concepts whether our formal framework allows us to differentiate between indicative and subjunctive conditionals. Stalnaker's (1996) prima facie counterexample to Aumann's (1995) theorem that common knowledge of rationality implies a subgame perfect equilibrium is questioned on the grounds of a plausibility criterion. Again drawing on what has been established about the structure of a game and the meaning of its elements, Gauthier's (1986) notion of constrained maximisation, an attempt to overcome the non-cooperative equilibrium of the finitely iterated prisoner's dilemma, is shown to be incompatible with orthodox game theoretical methodology. The approach of treating the unit of agency as endogenous is addressed

What's a face worth: Noneconomic factors in game playing

Where behavior defies economic analysis, one explanation is that individuals consider more than the immediate payoff. We present evidence that noneconomic factors influence behavior. Attractiveness influences offers in the Ultimatum and Dictator Games. Facial resemblance, a cue of relatedness, increases trusting in a two-node trust game. Only by considering the range of possible influences will game-playing behavior be explained

Affinity-Based Reinforcement Learning : A New Paradigm for Agent Interpretability

The steady increase in complexity of reinforcement learning (RL) algorithms is accompanied by a corresponding increase in opacity that obfuscates insights into their devised strategies. Methods in explainable artificial intelligence seek to mitigate this opacity by either creating transparent algorithms or extracting explanations post hoc. A third category exists that allows the developer to affect what agents learn: constrained RL has been used in safety-critical applications and prohibits agents from visiting certain states; preference-based RL agents have been used in robotics applications and learn state-action preferences instead of traditional reward functions. We propose a new affinity-based RL paradigm in which agents learn strategies that are partially decoupled from reward functions. Unlike entropy regularisation, we regularise the objective function with a distinct action distribution that represents a desired behaviour; we encourage the agent to act according to a prior while learning to maximise rewards. The result is an inherently interpretable agent that solves problems with an intrinsic affinity for certain actions. We demonstrate the utility of our method in a financial application: we learn continuous time-variant compositions of prototypical policies, each interpretable by its action affinities, that are globally interpretable according to customers’ financial personalities. Our method combines advantages from both constrained RL and preferencebased RL: it retains the reward function but generalises the policy to match a defined behaviour, thus avoiding problems such as reward shaping and hacking. Unlike Boolean task composition, our method is a fuzzy superposition of different prototypical strategies to arrive at a more complex, yet interpretable, strategy.publishedVersio

Bayesian modeling of biological motion perception in sport

La perception d’un mouvement biologique correspond à l’aptitude à recueillir des informations (comme par exemple, le type d’activité) issues d’un objet animé en mouvement à partir d’indices visuels restreints. Cette méthode a été élaborée et instaurée par Johansson en 1973, à l’aide de simples points lumineux placés sur des individus, à des endroits stratégiques de leurs articulations. Il a été démontré que la perception, ou reconnaissance, du mouvement biologique joue un rôle déterminant dans des activités cruciales pour la survie et la vie sociale des humains et des primates. Par conséquent, l’étude de l’analyse visuelle de l’action chez l’Homme a retenu l’attention des scientifiques pendant plusieurs décennies. Ces études sont essentiellement axées sur informations cinématiques en provenance de différents mouvements (comme le type d’activité ou les états émotionnels), le rôle moteur dans la perception des actions ainsi que les mécanismes sous-jacents et les substrats neurobiologiques associés. Ces derniers constituent le principal centre d’intérêt de la présente étude, dans laquelle nous proposons un nouveau modèle descriptif de simulation bayésienne avec minimisation du risque. Ce modèle est capable de distinguer la direction d’un ballon à partir d’un mouvement biologique complexe correspondant à un tir de soccer. Ce modèle de simulation est inspiré de précédents modèles, neurophysiologiquement possibles, de la perception du mouvement biologique ainsi que de récentes études. De ce fait, le modèle présenté ici ne s’intéresse qu’à la voie dorsale qui traite les informations visuelles relatives au mouvement, conformément à la théorie des deux voies visuelles. Les stimuli visuels utilisés, quant à eux, proviennent d’une précédente étude psychophysique menée dans notre laboratoire chez des athlètes. En utilisant les données psychophysiques de cette étude antérieure 3 et en ajustant une série de paramètres, le modèle proposé a été capable de simuler la fonction psychométrique ainsi que le temps de réaction moyen mesurés expérimentalement chez les athlètes. Bien qu’il ait été établi que le système visuel intègre de manière optimale l’ensemble des indices visuels pendant le processus de prise de décision, les résultats obtenus sont en lien avec l’hypothèse selon laquelle les indices de mouvement sont plus importants que la forme dynamique dans le traitement des informations relatives au mouvement. Les simulations étant concluantes, le présent modèle permet non seulement de mieux comprendre le sujet en question, mais s’avère également prometteur pour le secteur de l’industrie. Il permettrait, par exemple, de prédire l’impact des distorsions optiques, induites par la conception de verres progressifs, sur la prise de décision chez l’Homme. Mots-clés : Mouvement biologique, Bayésien, Voie dorsale, Modèle de simulation hiérarchique, Fonction psychométrique, Temps de réactionThe ability to recover information (e.g., identity or type of activity) about a moving living object from a sparse input is known as Biological Motion perception. This sparse input has been created and introduced by Johansson in 1973, using only light points placed on an individual's strategic joints. Biological motion perception/recognition proves to play a significant role in activities that are critical to the survival and social life of humans and primates. In this regard, the study of visual analysis of human action had the attention of scientists for decades. These studies are mainly focused on: kinematics information of the different movements (such as type of activity, emotional states), motor role in the perception of actions and underlying mechanisms, and associated neurobiological substrates. The latter being the main focus of the present study, a new descriptive risk-averse Bayesian simulation model, capable of discerning the ball’s direction from a set of complex biological motion soccer-kick stimuli is proposed. Inspired by the previous, neurophysiologically plausible, biological motion perception models and recent studies, the simulation model only represents the dorsal pathway as a motion information processing section of the visual system according to the two-stream theory, while the stimuli used have been obtained from a previous psychophysical study on athletes. Moreover, using the psychophysical data from the same study and tuning a set of parameters, the model could successfully simulate the psychometric function and average reaction time of the athlete participants of the aforementioned study. 5 Although it is established that the visual system optimally integrates all available visual cues in the decision-making process, the results conform to the speculations favouring motion cue importance over dynamic form by only depending on motion information processing. As a functioning simulator, the present simulation model not only introduces some insight into the subject at hand but also shows promise for industry use. For example, predicting the impact of the lens-induced distortions, caused by various lens designs, on human decision-making. Keywords: Biological motion, Bayesian, Dorsal pathway, Hierarchical simulation model, Psychometric function, Reaction tim

The Second-Order Impact of Relative Power on Outcomes of Crisis Bargaining: A Theory of Expected Disutility and Resolve

How does structure shape behavior and outcomes in crisis bargaining? Formal bargaining models of war rely on expected utility theory to describe first-order effects, whereby the payoffs of war determine actors’ “resolve” to fight as a function of costs and benefits. Value preferences of risk and future discounting are routinely treated as predefined and subjective individual attributes, outside the strategic context of bargaining or independent from expected utility. However, such treatment fails to account for context-conditional preferences sourcing from actors’ expectations of relative gain or loss. Drawing on a wealth of experimental evidence from behavioral economics, but without departing from rational choice or compromising theoretical parsimony, this dissertation proposes a systematic differentiation of value preferences conditional on anticipated gain/loss, i.e., the endogenous shift in power bargaining is expected to produce. Whereas the utility of gain incentivizes a challenge to the status quo, the disutility of loss imposes reactive resolve via asymmetrical risk-acceptance and lower discounting of future payoffs. The proposed theory of reactive resolve, thus, reveals the second-order impact of structural conditions on behavior and outcomes in crisis bargaining. Short of this behavioral effect, bargaining models exhibit a tendency of automatic adjustment of benefits which fails to capture the very essence of conflict and encourages erroneous hypotheses about the role of superiority, such as the nuclear superiority hypothesis reviewed and rejected as part of this research. The prescriptive and predictive inaccuracy of the standard rationalist approach is evident in the solution of the most fundamental bargaining problem - a credible commitment problem arising in the context of “bargaining over future bargaining power” (Fearon 1996). By formally integrating and simulating expected gain- and loss-induced preferences, this study demonstrates substantial deviations from previous results. Based on the findings, several theoretical and empirical implications are derived concerning the mechanism of crisis escalation, the relationship between the distribution of power and the likelihood of war, and the challenge to coercion. The prescribed mechanism is then empirically tested against cases of compellence and deterrence, including two of the most significant cases of nuclear crisis, using process tracing as a qualitative tool of causal inference

BARGAINING OVER BOOTS ON THE GROUND: Civil-Military Decision-Making on Force Allocation

Numerous factors influence how the United States engages in conflict. The two that appear to be most at odds are the preferences of the civilian principal and those of the military agent when deciding on force allocation. While both actors share common primary political objectives, their methods for achieving these objectives differ due to a variety of external factors. These conditions create a somewhat acrimonious relationship between the two, resulting in what Eliot Cohen describes as an “unequal dialogue.” I develop a theory that describes the decision calculus involved in the selection of force allocation that functionally models this normative theory. I identify five parameters that describe civilian and military preferences and endogenize force allocation within a crisis-bargaining framework that models the interplay of these preferences as civilians and the military negotiate over the decision of how to use force. This theory describes the civil-military bargain over force allocation, resulting in four hypotheses that explain the civil-military interaction on the selection of force allocation for engagement in armed conflict. I process trace this bargaining theory and the four resulting hypotheses through analysis of the decision-making for Operation Iraqi Freedom. I subsequently conduct a cross-case comparison of six other conflicts that falsify these four hypotheses and present other empirical considerations that influence the crisis-bargaining framework. I conclude with a discussion of the implications of this study to civil-military decision-making and the way ahead for future research.Doctor of Philosoph