Common reasoning in games: a Lewisian analysis of common knowledge of rationality

The game-theoretic assumption of ‘common knowledge of rationality’ leads to paradoxes when rationality is represented in a Bayesian framework as cautious expected utility maximisation with independent beliefs (ICEU). We diagnose and resolve these paradoxes by presenting a new class of formal models of players’ reasoning, inspired by David Lewis’s account of common knowledge, in which the analogue of common knowledge is derivability in common reason. We show that such models can consistently incorporate any of a wide range of standards of decision-theoretic practical rationality. We investigate the implications arising when the standard of decision-theoretic rationality so assumed is ICEU.Common reasoning; common knowledge; common knowledge of rationality; David Lewis; Bayesian models of games

Moral Judgments in Social Dilemmas: How Bad is Free Riding?

In the last thirty years, economists and other social scientists have investigated people’s normative views on distributive justice. Here we study people’s normative views in social dilemmas, which underlie many situations of economic and social significance. Using insights from moral philosophy and psychology we provide an analysis of the morality of free riding. We use experimental survey methods to investigate people’s moral judgments empirically. We vary others’ contributions, the framing (“give-some” vs. “take-some”) and whether contributions are simultaneous or sequential. We find that moral judgments of a free rider depend strongly on others’ behaviour; and that failing to give is condemned more strongly than withdrawing all support.moral judgments, moral psychology, framing effects, public goods experiments, free riding

Moral Judgments in Social Dilemmas: How Bad is Free Riding?

In the last thirty years, economists and other social scientists have investigated people’s normative views on distributive justice. Here we study people’s normative views in social dilemmas, which underlie many situations of economic and social significance. Using insights from moral philosophy and psychology we provide an analysis of the morality of free riding. We use experimental survey methods to investigate people’s moral judgments empirically. We vary others’ contributions, the framing (“give-some” vs. “take-some”) and whether contributions are simultaneous or sequential. We find that moral judgments of a free rider depend strongly on others’ behaviour; and that failing to give is condemned more strongly than withdrawing all support.moral judgments, moral psychology, framing effects, public goods experiments, free riding

Comparison‐specific preferences:The attentional dilution effect for delay and risk

In cross-modal decisions, the options differ on many attributes, and in uni-modal decisions, they differ on few. We supply new theory and data to understand how discounting for both delay and risk differs between cross-modal and uni-modal decisions. We propose the attentional dilution effect in decision making in which (a) allocation of limited attention to an attribute determines that attribute's decision weight and (b) the attention an attribute receives is increasing in the difference between options on that attribute and decreasing in the number of other attributes that differ between options. We introduce the random order delayed compensation method and conduct two experiments focusing on delayed and risky receipt of consumer goods. Consistent with the attentional dilution effect, we find that in this domain, patience and risk tolerance are generally higher in cross-modal than uni-modal decisions. We suggest that, since many real-world choices are cross-modal, people may be more patient and risk-tolerant in their everyday life than is suggested by standard lab experiments

Common reasoning in games: a Lewisian analysis of common knowledge of rationality

Abstract: We present a new class of models of players’ reasoning in non-cooperative games, inspired by David Lewis’s account of common knowledge. We argue that the models in this class formalise common knowledge of rationality in a way that is distinctive, in virtue of modelling steps of reasoning; and attractive, in virtue of being able to represent coherently common knowledge of any consistent standard of individual decision-theoretic rationality. We contrast our approach with that of Robert Aumann (1987), arguing that the former avoids and diagnoses certain paradoxes to which the latter may give rise when extended in particular ways

On preference imprecision

Recent research invokes preference imprecision to explain violations of individual decision theory. While these inquiries are suggestive, the nature and significance of such imprecision remain poorly understood. We explore three questions using a new measurement tool in an experimental investigation of imprecision in lottery valuations: Does such preference imprecision vary coherently with lottery structure? Is it stable on repeat measurement? Does it have explanatory value for economic behaviour? We find that imprecision behaves coherently, shows no tendency to change systematically with experience, is related to choice variability, but is not a main driver of the violations of standard decision theory that we consider

The strength of sensitivity to ambiguity

We report an experiment where each subject’s ambiguity sensitivity is measured by an ambiguity premium, a concept analogous to and comparable with a risk premium. In our design, some tasks feature known objective risks and others uncertainty about which subjects have imperfect, heterogeneous, information (“ambiguous tasks”). We show how the smooth ambiguity model can be used to calculate ambiguity premia. A distinctive feature of our approach is estimation of each subject’s subjective beliefs about the uncertainty in ambiguous tasks. We find considerable heterogeneity among subjects in beliefs and ambiguity premia; and that, on average, ambiguity sensitivity is about as strong as risk sensitivity

Time matters less when outcomes differ: uni-modal versus cross-modal comparisons in intertemporal choice

Uni-modal intertemporal decisions involve comparing options of the same type (e.g. apples now versus apples later), and cross-modal decisions involve comparing options of different types (e.g. a car now versus a vacation later). As we explain, existing models of intertemporal choice do not allow time preference to depend on whether the comparisons to be made are uni-modal or cross-modal. We test this restriction in an experiment using the delayed-compensation method, a new extension of the standard method of eliciting intertemporal preferences that allows for assessment of time preference for non-monetary and discrete outcomes, as well as for both cross-modal and uni-modal comparisons. Participants were much more averse to delay for uni-modal than cross-modal decisions. We provide two potential explanations for this effect: one drawing on multi-attribute choice, the other drawing on construal level theory

Comparison‐specific preferences: The attentional dilution effect for delay and risk

In cross‐modal decisions, the options differ on many attributes, and in uni‐modal decisions, they differ on few. We supply new theory and data to understand how discounting for both delay and risk differs between cross‐modal and uni‐modal decisions. We propose the attentional dilution effect in decision making in which (a) allocation of limited attention to an attribute determines that attribute's decision weight and (b) the attention an attribute receives is increasing in the difference between options on that attribute and decreasing in the number of other attributes that differ between options. We introduce the random order delayed compensation method and conduct two experiments focusing on delayed and risky receipt of consumer goods. Consistent with the attentional dilution effect, we find that in this domain, patience and risk tolerance are generally higher in cross‐modal than uni‐modal decisions. We suggest that, since many real‐world choices are cross‐modal, people may be more patient and risk‐tolerant in their everyday life than is suggested by standard lab experiments

Discriminating between models of ambiguity attitude: a qualitative test

During recent decades, many new models have emerged in pure and applied economic theory according to which agents’ choices may be sensitive to ambiguity in the uncertainty that faces them. The exchange between Epstein (2010) and Klibanoff et al. (2012) identified a notable behavioral issue that distinguishes sharply between two classes of models of ambiguity sensitivity that are importantly different. The two classes are exemplified by th