This paper introduces an axiomatic model of decision making where a person's subjective judgment as to the likelihood of different states of nature depends upon her anticipated payoff in those states. In the resulting representation the payoff consequences of an event affect beliefs as if they...

We propose a class of multiple-prior representations of preferences under ambiguity where the belief the decision-maker (DM) uses to evaluate an uncertain prospect is the outcome of a game played by two conflicting forces, Pessimism and Optimism. The model does not restrict the sign of the DM's...

Economists often estimate economic models on data and use the point estimates as a stand-in for the truth when studying the model’s implications for optimal decision-making. This practice ignores model ambiguity, exposes the decision problem to misspecification, and ultimately leads to...

Bayes' statistical rule remains the status quo for modeling belief updating in both normative and descriptive models of behavior under uncertainty. Recent research has questioned the use of Bayes' rule in descriptive models of behavior, presenting evidence that people overweight 'good news'...

We design and implement a novel experimental test of subjective expected utility theory and its generalizations. Our experiments are implemented in the laboratory with a student population, and pushed out through a large-scale panel to a general sample of the US population. We find that a...

This paper analyzes decisions on emissions of a stock pollutant under uncertainty in a two period model. Decisions are based on a weighted average of expected utility (EU) and the MaxiMin criterion. I first show that more weight on the worst case (less weight on EU) may lead to increased first...

We challenge the standard definition of economic rationality as consistency by making use of a novel distinction between axioms of decision theory: consistency and preference axioms. We argue that this distinction has been overlooked by the literature and, as a result, evidence that consistency...

Loss aversion postulates that people prefer avoiding losses over acquiring gains of equal size. It is a central part of prospect theory and, according to Daniel Kahneman, “the most significant contribution of psychology to behavioral economics” (Kahneman, 2011, p. 300). It has powerful...