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Axiomatizing bounded rationality: the priority heuristic

Axiomatizing bounded rationality: the priority heuristic
Axiomatizing bounded rationality: the priority heuristic

This paper presents an axiomatic framework for the priority heuristic, a model of bounded rationality in Selten's (in: Gigerenzer and Selten (eds.) Bounded rationality: the adaptive toolbox, 2001) spirit of using empirical evidence on heuristics. The priority heuristic predicts actual human choices between risky gambles well. It implies violations of expected utility theory such as common consequence effects, common ratio effects, the fourfold pattern of risk taking and the reflection effect. We present an axiomatization of a parameterized version of the heuristic which generalizes the heuristic in order to account for individual differences and inconsistencies. The axiomatization uses semiorders (Luce, Econometrica 24:178-191, 1956), which have an intransitive indifference part and a transitive strict preference component. The axiomatization suggests new testable predictions of the priority heuristic and makes it easier for theorists to study the relation between heuristics and other axiomatic theories such as cumulative prospect theory.

Axiomatization, Bounded rationality, EUT, EVT, Priority heuristic
0040-5833
183-196
Drechsler, Mareile
6566badc-7afb-44bf-aaea-05778aaef84f
Katsikopoulos, Konstantinos
b97c23d9-8b24-4225-8da4-be7ac2a14fba
Gigerenzer, Gerd
16856b2c-59a5-4a16-80da-d2968c4437dd
Drechsler, Mareile
6566badc-7afb-44bf-aaea-05778aaef84f
Katsikopoulos, Konstantinos
b97c23d9-8b24-4225-8da4-be7ac2a14fba
Gigerenzer, Gerd
16856b2c-59a5-4a16-80da-d2968c4437dd

Drechsler, Mareile, Katsikopoulos, Konstantinos and Gigerenzer, Gerd (2013) Axiomatizing bounded rationality: the priority heuristic. Theory and Decision, 77 (2), 183-196. (doi:10.1007/s11238-013-9393-0).

Record type: Article

Abstract

This paper presents an axiomatic framework for the priority heuristic, a model of bounded rationality in Selten's (in: Gigerenzer and Selten (eds.) Bounded rationality: the adaptive toolbox, 2001) spirit of using empirical evidence on heuristics. The priority heuristic predicts actual human choices between risky gambles well. It implies violations of expected utility theory such as common consequence effects, common ratio effects, the fourfold pattern of risk taking and the reflection effect. We present an axiomatization of a parameterized version of the heuristic which generalizes the heuristic in order to account for individual differences and inconsistencies. The axiomatization uses semiorders (Luce, Econometrica 24:178-191, 1956), which have an intransitive indifference part and a transitive strict preference component. The axiomatization suggests new testable predictions of the priority heuristic and makes it easier for theorists to study the relation between heuristics and other axiomatic theories such as cumulative prospect theory.

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More information

Published date: 13 September 2013
Keywords: Axiomatization, Bounded rationality, EUT, EVT, Priority heuristic

Identifiers

Local EPrints ID: 440697
URI: http://eprints.soton.ac.uk/id/eprint/440697
ISSN: 0040-5833
PURE UUID: 05cca5c6-0e46-49af-868d-e790294cef8b
ORCID for Konstantinos Katsikopoulos: ORCID iD orcid.org/0000-0002-9572-1980

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Date deposited: 13 May 2020 16:47
Last modified: 14 May 2020 00:54

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