Correlation Misperception in Choice

We present a decision-theoretic analysis of an agent's understanding of the interdependencies in her choices. We provide the foundations for a simple and flexible model that allows the misperception of correlated risks. We introduce a framework in which the decision maker chooses a portfolio of assets among which she may misperceive the joint returns, and present simple axioms equivalent to a representation in which she attaches a probability to each possible joint distribution over returns and then maximizes subjective expected utility using her ( possibly misspecified) beliefs. (JEL D11, D81, D83, G11)

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Reasonable Care under Uncertainty

Patient Care under Uncertainty ◽

10.23943/princeton/9780691194738.003.0004 ◽

2019 ◽

pp. 74-86

Author(s):

Charles F. Manski

Keyword(s):

State Space ◽

Decision Maker ◽

Expected Utility ◽

Rational Expectations ◽

Decision Criterion ◽

The State ◽

Minimax Regret ◽

Subjective Expected Utility ◽

Reasonable Care ◽

States Of Nature

This chapter develops decision-theoretic principles for reasonable care under uncertainty. It discusses some reasonable ways to choose among undominated actions. When addressing this issue, decision theorists have distinguished three primary situations regarding information that a decision maker may or may not have beyond specification of the state space: decisions with rational expectations, maximization of subjective expected utility, and decisions under ambiguity. When making a choice under ambiguity, a reasonable way to act is to use a decision criterion that achieves adequate performance in all states of nature. There are multiple ways to formalize this idea. The two most commonly studied are the maximin and minimax-regret (MR) criteria.

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The Paradox of Not Voting: A Decision Theoretic Analysis

American Political Science Review ◽

10.1017/s0003055400117368 ◽

1974 ◽

Vol 68 (2) ◽

pp. 525-536 ◽

Cited By ~ 187

Author(s):

John A. Ferejohn ◽

Morris P. Fiorina

Keyword(s):

Decision Making ◽

Decision Maker ◽

Expected Utility ◽

Utility Maximization ◽

Decision Making Under Uncertainty ◽

Minimax Regret ◽

Rational Behavior ◽

Theoretic Analysis ◽

Expected Utility Maximization ◽

General Conditions

Various analysts have noted that the decision to vote in mass elections is difficult to justify from the standpoint of an expected utility maximization model. Put simply, the probability that a citizen's vote will affect the outcome is so small that the expected gains from voting are outweighed by the costs in time and effort. Such analyses treat rational behavior as synonymous with expected utility maximization. In this paper we show that an alternative criterion for decision making under uncertainty, minimax regret, specifies voting under quite general conditions. Both two and three candidate plurality elections are considered. Interestingly, a minimax regret decision maker never votes for his second choice in a three candidate election, whereas expected utility maximizers clearly may. Thus, the model proposed has implications for candidate choice as well as turnout.

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