“Constructed” preferencesSS200 Colin Camerer.pptVIP

“Constructed” preferencesSS200 Colin Camerer Preferences: “complete, transitive” u(x), tradeoffs among goods Historical note: Axioms not empirically well-founded. They were designed to provide simple mathematical framework for aggregation (utility? demand) and because Pareto won the “what is utility?” battle “Constructed” suggests expression of preference is like problem-solving: Will you vote for John Kerry? Answered by rapid intuition (tall, good hair) and/or deliberate logic (positions on issues) Alternative views of preference: Learned (reinforcement, “locked in a closet” story) “Discovered” (Plott, implies path-independence) Hybrid view: Combination of predisposition (e.g., language, “preparedness”), learning and logic “Constructed” preference: effects Context-dependence (comparative) Description-dependent “framing (descriptions guide attention) Reference-dependence (changes, not levels; anchoring) Some values “protected”/sacred (health, environment) Is too much choice bad? Open questions: Are effects smaller with familiar choices? Experts? Markets? New predictions (e.g. “big tip” labor supply experiment) Cross-species (pigeons, rats, capuchins) Preferences and utility theory: A guide for neuroscientistsColin Camerer, Caltech Utility theory: numerical accounting for choices Bundles of goods Risky and ambiguous “gambles” (EU, SEU) Choices over time (discounted utility) Representation theorems: Find mathematical structures that map onto (“represent”) observable choices U(x) U(y) iff x ? y numbers preferences EU: Preferences over risk How do people weigh and combine likelihoods and outcomes? Gambling Risky investment (stocks, college, mates) Insurance Social risks (terrorism, global warming) Notation: f(x) is a risk with probability f(x) of outcome x Where utility theories come from Axiomatic Decompose representations into logical “bones” Find sets of axioms that are mathematically equivalent to numerical representations Empirical What