Edited by Guido Buenstorf
Chapter 2: To Weigh or Not to Weigh that is the Question: Advice on Weighing Goods in a Boundedly Rational Way
2. To weigh or not to weigh, that is the question: advice on weighing goods in a boundedly rational way Werner Güth and Hartmut Kliemt CONCEPTUALIZING PURPOSEFUL ACTION UNDER UNCERTAINTY 1 Proverbially, except for death and taxes, nothing is certain in this world. More technically speaking, since control over consequences is always imperfect, a choice must be represented formally as the problem of selecting a function that maps states of the world into a list of possible consequences. What actors expect to emerge under their choices is, of course, dependent on their knowledge and information. Their preferences over the set of functions depend on their desires as well. The desires along with beliefs determine how they will rank lists (functions) over states of the world regarded as possible. Classical decision theory assumes that the beliefs of the individual decision maker will determine probabilities pj $ 0 for all states j such that p1 1 . . . 1 pn 5 1 results. Using p 5 (p1, p2, . . ., pn) to denote the vector of probabilities for lists E 5 (E1, E2, . . ., En) , we can combine probabilities and lists: E/p 5 (E1 /p1, . . ., En /pn) ; where, of course, ‘Ej /pj’ is to be read as ‘result Ej with probability pj’. Finally, provided that certain axioms are fulfilled, a utility index u and probabilities p exist such that individual preferences over any two lists E 5 (E1, E2, . . ., En) , K 5 (K1, K2, . . ., Kn) will yield: u (E/p) $ u (K/p) iff K/p is not preferred to...
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