Axiomatic Foundations for Satisficing Behavior

A theory of decision making is proposed that supplies an axiomatic basis for the concept of "satisficing" postulated by Herbert Simon. After a detailed review of classical results that characterize several varieties of preference-maximizing choice behavior, the axiomatization proceeds by weakening the inter-menu contraction consistency condition involved in these characterizations. This exercise is shown to be logically equivalent to dropping the usual cognitive assumption that the decision maker fully perceives his preferences among available alternatives, and requiring instead merely that his ability to perceive a given preference be weakly decreasing with respect to the relative complexity (indicated by set inclusion) of the choice problem at hand. A version of Simon's hypothesis then emerges when the notion of "perceived preference" is endowed with sufficiently strong ordering properties, and the axiomatization leads as well to a constraint on the form of satisficing that the decision maker may legitimately employ.

Behavioural decisions & welfare

If decision-makers (DMs) do not always do what is in their best interest, what do choices reveal about welfare? This paper shows how observed choices can reveal whether the DM is acting in her own best interest. We study a framework that relaxes rationality in a way that is common across a variety of seemingly disconnected positive behavioral models and admits the standard rational choice model as a special case. We model a behavioral DM (boundedly rational) who, in contrast to a standard DM (rational), does not fully internalize all the consequences of her own actions on herself. We provide an axiomatic characterization of choice correspondences consistent with behavioral and standard DMs, propose a choice experiment to infer the divergence between choice and welfare, state an existence result for incomplete preferences and show that the choices of behavioral DMs are, typically, sub-optimal

A Humean Theory of Choice of which Rationality May Be One Consequence

For the reader who considers economic theory of choice as a special case of a more general theory of action, Hume's discussion of the determinants of action in the Treatise of Human Nature (1739-1740), in the Enquiry on Human Understanding (1748), and in the Dissertation on Passions (1757), deserves attention. However, according to some modern commentators, Hume does not seem to have given any evidence which would favour what we nowadays consider as the kind of rationality involved in modern theories of rational choice. On the contrary, this paper arrives to the conclusion that consistency between preferences and choice, like the usual properties of completeness and transitivity, may be considered as outcomes of a mental process, described by means of a decision algorithm which aims at representing Hume's theory of choice.Hume; rationality; decision; passion; desire; preference; will; choice; rationalité; décision; désir; préférences, volonté; choix

Behavioural Decisions and Welfare

What are the normative implications of behavioral economics? We study a model where the decisions a person makes, consciously or unconsciously, affect her psychological state (reference point, beliefs, expectations, self-image) which, in turn, impacts on her ranking over available decisions in the first place. We distinguish between standard decisions where the decision-maker internalizes the feedback from her actions to her psychological state, and behavioural decisions where the psychological state is taken as given (although a decision outcome requires that action and psychological state are mutually consistent). In a behavioural decision, the individual imposes an externality on herself. We provide an axiomatic characterization of behavioral decisions. We show that the testable implications of behavioral and standard decisions are different and the outcomes of the two decision problems are, typically, distinguishable. We discuss the consequences for public policy of our formal analysis and over normative grounds for subsidized psychological therapiesBehavioural Decisions; Indistinguishabilty; revealed preferences; normative preferences; welfare; paternalism; autonomy; existence

Set-Rationalizable Choice and Self-Stability

A common assumption in modern microeconomic theory is that choice should be rationalizable via a binary preference relation, which \citeauthor{Sen71a} showed to be equivalent to two consistency conditions, namely $\alpha$ (contraction) and $\gamma$ (expansion). Within the context of \emph{social} choice, however, rationalizability and similar notions of consistency have proved to be highly problematic, as witnessed by a range of impossibility results, among which Arrow's is the most prominent. Since choice functions select \emph{sets} of alternatives rather than single alternatives, we propose to rationalize choice functions by preference relations over sets (set-rationalizability). We also introduce two consistency conditions, $\hat\alpha$ and $\hat\gamma$, which are defined in analogy to $\alpha$ and $\gamma$, and find that a choice function is set-rationalizable if and only if it satisfies $\hat\alpha$. Moreover, a choice function satisfies $\hat\alpha$ and $\hat\gamma$ if and only if it is \emph{self-stable}, a new concept based on earlier work by \citeauthor{Dutt88a}. The class of self-stable social choice functions contains a number of appealing Condorcet extensions such as the minimal covering set and the essential set.Comment: 20 pages, 2 figure, changed conten

Rational Choice on Arbitrary Domains: A Comprehensive Treatment

The rationalizability of a choice function on arbitrary domains by means of a transitive relation has been analyzed thoroughly in the literature. Moreover, characterizations of various versions of consistent rationalizability have appeared in recent contributions. However, not much seems to be known when the coherence property of quasi-transitivity or that of P-acyclicity is imposed on a rationalization. The purpose of this paper is to fill this significant gap. We provide characterizations of all forms of rationalizability involving quasi-transitive or P-acyclical rationalizations on arbitrary domains

Advice for the Steady: Decision Theory and the Requirements of Instrumental Rationality

Standard decision theory, or rational choice theory, is often interpreted to be a theory of instrumental rationality. This dissertation argues, however, that the core requirements of orthodox decision theory cannot be defended as general requirements of instrumental rationality. Instead, I argue that these requirements can only be instrumentally justified to agents who have a desire to have choice dispositions that are stable over time and across different choice contexts. Past attempts at making instrumentalist arguments for the core requirements of decision theory fail due to a pervasive assumption in decision theory, namely the assumption that the agent’s preferences over the objects of choice – be it outcomes or uncertain prospects – form the standard of instrumental rationality against which the agent’s actions are evaluated. I argue that we should instead take more basic desires to be the standard of instrumental rationality. But unless agents have a desire to have stable choice dispositions, according to this standard, instrumental rationality turns out to be more permissive than orthodox decision theory