Imperfect Discrimination, Similarity, and Stochastic Transitivity. [PDF] - Online Appendix [PDF] - Economic Theory Bulletin (2024)
ABSTRACT: We study the relationship between imperfect discrimination, similarity, and stochastic transitivity in generalized versions of Perturbed Utility (Fudenberg et al. 2015) and Fechnerian models (Debreu, 1958). We show that these models are equivalent and that, within them, the properties of a similarity function can characterize all notions of stochastic transitivity (as Weak, Moderate, and Strong). Specifically, Natenzon & He (2023) have recently shown that choice probabilities are moderately transitive if and only if the similarity function is a metric. We provide a counterpoint and show that unless choice probabilities are strongly transitive, the similarity function can violate the triangle inequality.
Irrational Random Utility models (joint with Henrik Petri). [PDF]
ABSTRACT: The Random Utility Model (RUM) is the leading model to represent the aggregate choices of a heterogeneous population of preference maximizers. We show that if (and only if) preferences are sufficiently uncorrelated, RUM choices can also be generated by a population of decision makers who do not maximize any preference. In proving this result, we also characterize the general class of choices generated by such irrational populations, with applications beyond the RUM framework. We discuss the relevance of our results for the falsifiability of the rational interpretation of RUMs, the inference of individual rationality from aggregate choices, and the nature of welfare judgments.
The Luce Model, Regularity, and Choice Overload (joint with Henrik Petri). [PDF] [last version, PDF]
ABSTRACT: Regularity (Block & Marschak, 1960) is a foundational property of the theory of stochastic choice. We characterize regularity within a new stochastic model: the General Threshold-Luce model [GTLM]. The decision-maker selects a consideration set in the first stage using a menu-dependent threshold model and then randomizes in the second stage using a Luce model. We show that (i) regular stochastic choices can arise if, and only if, choices are path-independent; (ii) and always arise if, and only if, choices also satisfy a novel property, denoted property Theta. Novel representation results then uncover a connection between regularity, choice overload, and the cardinal properties of the utility function.
Behavioral Welfare Analysis and Revealed Preference: Theory and Experimental Evidence. [PDF] - Online Appendix [PDF] - (Revise & Resubmit - Theory and Decision)
ABSTRACT: Eliciting preferences from decision-makers who are not utility maximizers implies an intrinsic trade-off between obtaining a coarse preference and an incorrect one (false-positive). Some current tools minimize false-positives but become coarser and coarser as the dataset grows. We propose an informational property [Informational Responsiveness] that limits the coarseness problem and, as the dataset grows, characterizes a family of tools that can successfully elicit the underlying preference from a broad set of models. Through a novel experiment, we show that these tools substantially reduce the coarseness of the elicited preference while only marginally increasing false-positives. In fact, if the researcher is forced to resolve the uncertainty given by the coarseness of the elicited preference, we show that our proposal leads to a substantial reduction in the expected number of false positives.
On the relation between Rationality and Consistency [PDF]- Online Appendix [PDF] - (Revise & Resubmit - Social Choice and Welfare)
ABSTRACT: We investigate whether the standard definition of economic rationality as consistency is correlated with decision-making ability. We argue that documented positive correlations are often based on incorrect identification strategies due to potential confounding factors. We use a theoretical framework to define consistency and a novel experimental design to show that consistency and decision-making ability are logically independent. Then, we investigate the factors that, in our experiment, drive violations of consistency. We find that the use of heuristics is by far the major driver of consistency and is not correlated with decision-making ability measured as cognitive sophistication and level of understanding of the design. Overall, our experimental evidence raises doubts about the choice of language that equates consistency with rationality in economics.
Dishonesty: the role of planning, temptation, and self-control (joint with Ivan Soraperra). [PDF] - (Revise & Resubmit - Journal of Economic Behavior & Organization)
ABSTRACT: Accumulated experimental evidence shows that, when people have the opportunity to cheat, they often take it. Most literature on cheating opportunities forces people into a tempting situation where they face a trade-off between money and morality. In our paper, we ask whether people are sophisticated in their cheating behavior and whether they search for or avoid these trade-offs. Overall, participants in the experiment exhibit very little temptation, i.e., virtually no one is willing to pay a cost to avoid the possibility of misreporting in a coin-flip-like task, and they are able to stick to their plan consistently. Participants with a strict preference for the tempting situation, i.e., those who are planning to cheat, show a winning rate of about 95% and those who are indifferent between having and not having the opportunity, i.e., who are planning to be honest, show a winning rate that is close to 50%.
Exploring Choice Errors in Children (joint with Valentino Dardanoni, Carla Guerriero, Paola Manzini, and Marco Mariotti). [PDF]
ABSTRACT: Mistakes in decision making can have serious consequences; while adult choice behaviour is well studied, much less is known about how children make decisions. We study experimentally how children's ability to avoid choice errors develops over time, focusing on both riskless and risky decisions among primary school children. Unsurprisingly, inconsistent or erroneous choices in younger children abound. However, by ages 10–11, some display error rates comparable to adults. We also identify a framing effect—correlation neglect—previously only studied in adults. Our findings are consistent with a limited stochastic consideration choice model, reflecting the bounded nature of children's decision-making.
On the threshold representation of partial orderings (joint with Davide Carpentiere). [PDF]
ABSTRACT: In this paper, we provide a constructive proof for threshold representations of partial orderings in a finite setting and extend the construction to arbitrary sets. This contributes to a long-standing open problem posed in Nakamura (2002) and Aleskerov, Bouyssou, & Monjardet (2007). We identify and discuss aspects of our proof that do not directly generalize to an infinite setting and, for each, provide intuitive sufficient conditions.
Preferences for social mobility: an experimental approach. (joint with Valentino Dardanoni, Vincenzo Prete, and Ivan Soraperra).
Behavioural heterogeneity and preference elicitation in MPLs (joint with Valentino Dardanoni). [Project in dormant phase]
ABSTRACT: We use a nonparametric empirical Bayes approach to estimate the joint distribution of individual preference and precision parameters in MPL designs. Using a representative sample of the Danish population, we find high levels of behavioural heterogeneity with multimodal marginal distributions of both preference and precision. In particular, the distribution of precision reveals the existence of a substantial portion of individuals (30-40\%) who use randomization. We replicate our results on two other experimental datasets with different populations, for risk and time preferences, and with and without multiple switching.
Revealed Preference and Rationality Measurement with Indecision. [Project in dormant phase]
ABSTRACT: We model an indecisive decision maker with a two-stage procedure in which he first maximizes an incomplete preference relation and then randomizes over the remaining alternatives. We construct a family of indexes of rationality and explore the implications of model assumptions on rationality measurement. Then, using experimental data we compare our family of indexes to the main existing indexes in the literature.