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Are violations of expected utility theory just memory problems?
Or should I refer to availability heuristics? Here is Daniel Gilbert's MP3 on the topic. To put it simply, lottery losers, despite their great numbers, rarely receive as much media publicity as the few winners. Here is my previous post on Gilbert, or just check the right hand side of this blog for the Blogads entry which quotes me...
Thanks to Boing Boing for the pointer.
Addendum: Here is Gilbert's short essay, from his blog, on whether fatherhood makes men happy. Happy Father's Day to our eligible readers...
Posted by Tyler Cowen on June 18, 2006 at 02:38 PM in Economics | Permalink
Comments
In his Nature of Rationality, Nozick supplements the traditional expected utility theory with what he calls "symbolic value" to create a rough Decision Value Formula. For any act, A
Decision Value (A)=W(EU) * EU(A) + W(SU) * SU(A)
Where W refers to the weights given to both the expected utility (EU) and the symbolic utility, (SU). Listening to Gilbert's lecture, I wonder how much something like that is in play with some of his examples. For instance, his example concerning eating a potato chip either in the presence of a piece of Godiva chocolate or a can of Spam. The symbolic cultural overtones are obvious here, signalling status and fashion. Likewise with the gambling: the daring represented by laying it all the line to overcome great odds...what kind of life is that symbolic of?
Posted by: Rue Des Quatre Vents at Jun 18, 2006 6:47:07 PM
Just listening to the first 4 minutes was enough for me to conclude that
Gilbert is a simplistic thinker on the topic. His idea there is that
people in Las Vegas are pulling slots just for the chance of winning.
The free drinks, and attractive cocktail waitresses in short skirts,
showing lots of cleavage, those are an accident, I
suppose?
Posted by: jim at Jun 18, 2006 9:09:23 PM
If you want some interesting insights about expected utility, it is
necessary to dig deeper than Gilbert. For starters try Harry Markowitz's
extension of the Friedman-Savage work. Want more? Check out the
extension of Markowitz's model by Coelho and McClure.
Posted by: jim at Jun 18, 2006 9:14:04 PM
For a nice deconstruction of Prospect Theory (probably the most prominent alternative to EU) see:
David Mandel's article in Organizational Behavior and Human Decision Processes, v.85, n.1, 56-76, 2001
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