Reference-dependent expected utility with incomplete preferences

An important reason why people deviate from expected utility is reference-dependence of preferences, implying loss aversion. Bleichrodt [Bleichrodt H. (2007). Reference-dependent utility with shifting reference points and incomplete preferences. Journal of Mathematical Psychology, 51, 266-276] argued that in the empirically realistic case where the reference point is always an element of the decision maker’s opportunity set, reference-dependent preferences have to be taken as incomplete. This incompleteness is a consequence of reference-dependence and is different in nature from the type of incompleteness usually considered in the literature. It cannot be handled by existing characterizations of reference-dependence, which all assume complete preferences. This paper presents new preference foundations that extend reference-dependent expected utility to cover this case of incompleteness caused by reference-dependence. The paper uses intuitive axioms that are easy to test. Two special cases of reference-dependent expected utility are also characterized: one model in which utility is decomposed into a normative and a psychological component and one model in which loss aversion is constant. The latter model has been frequently used in empirical research on reference-dependence.     

Take it or leave it for something better? Responses to fair offers in ultimatum bargaining

We investigated if responders accept a 50–50 split in a modified version of the ultimatum game, in which rejection yields a higher payoff (€7) than accepting the equal offer (€5). Therefore, the decision to accept the 50–50 split in this modified ultimatum game cannot be perceived as a self-interest act, as opposed to the standard game, in which acceptance may reflect resignation in the knowledge that the equal split is the best one can expect. A substantial proportion of responders accepts the equal split in this modified game (Study 1), which clearly establishes egalitarian preferences. Further studies show that the willingness to accept is not an artifact of indifference towards the extra payoff (Study 2), but reflects true concerns for proposers’ outcomes (Study 3).     

Happiness Prospers in Democracy

An econometric analysis of a happiness function, based on a surveyof 6,000 persons in Switzerland, indicates that:(1) the more developed the institutions of direct democracy, the happier the individuals are;(2) people derive procedural utility from the possibility of participating in the direct democratic process over and above a more favorable political outcome;(3) the unemployed are much less happy than the employed, independent of income;(4) higher income is associated with higher levels of happiness.The consideration of institutional differences in cross-regional data offers important new insights into happiness research.     

The Four Qualities of Life

The terms 'quality-of-life', 'well-being' and 'happiness' denote different meanings; sometimes they are used as an umbrella term for all of value, and at other times to denote special merits. This paper is about the specific meanings of the terms. It proposes a classification based on two bi-partitions; between life 'chances' and life 'results', and between 'outer' and 'inner' qualities. Together these dichotomies imply four qualities of life: 1) livability of the environment, 2) life-ability of the individual, 3) external utility of life and 4) inner appreciation of life.This fourfold matrix is applied in three ways: firstly to place related notions and alternative classifications, secondly to explore substantive meanings in various measures for quality of life and thirdly to find out whether quality-of-life can be measured comprehensively. This last question is answered in the negative. Current sum-scores make little sense. The most inclusive measure is still how long and happily people live.     

An ordinal evaluation of categorical judgement data by random utilities and a corresponding correlation analysis

Categorical judgement data are analyzed along the lines of random utility theory. A class of orders is introduced (categorical weak orders); their characteristic vectors are regarded as points in a Euclidean space; their convex hull forms a polytope whose facets are fully characterized. This polytope is shown to correspond to an order polytope. Furthermore, its relation to the biorder polytope is pointed out. The convex representations of a given point of the polytope are discussed. The impact of these results on the methods of analyzing data arising from a categorical judgement procedure is outlined. In particular, some consequences are drawn with respect to the usual evaluation of correlations of such data.     

How to bring the news … peak-end effects in children’s affective responses to peer assessments of their social behavior

The retrospective evaluation of an event tends to be based on how the experience felt during the most intense moment and the last moment. Two experiments tested whether this so-called peak-end effect influences how primary school students are affected by peer assessments. In both experiments, children (ages 7–12) assessed two classmates on their behaviour in school and then received two manipulated assessments. In Experiment 1 (N ?=?30), one assessment consisted of four negative ratings and the other of four negative ratings with an extra moderately negative rating added to the end. In Experiment 2 (N ?=?44), one assessment consisted of four positive ratings, and the other added an extra moderately positive rating to the end. Consistent with the peak-end effect, the extended assessment in Experiment 1 and the short assessment in Experiment 2 were remembered as more pleasant and less difficult to deal with, which shaped children’s peer assessment preferences and prospective choices of which assessment to repeat. These findings indicate that the process of peer assessment can be improved by ending the feedback with the most positive part of the assessment.     

Defining Creativity: Don't We Also Need to Define What Is Not Creative?

I argue that any attempt to define creative ideas cannot fully succeed without also defining uncreative ideas. This argument begins by defining three parameters that characterize a potentially creative thought: the idea's initial probability (p), the final utility (u), and the creator's prior knowledge of that utility (v). The three parameters then lead to a three‐criterion multiplicative definition of personal creativity, namely, c = (1 ? p)u(1 ? v), where the first factor indicates originality and the third factor surprise. Although creativity can only maximize as originality, utility, and surprise all approach unity, the same definition indicates that there are seven different ways that creativity can minimize. These alternatives were identified as (a) routine, reproductive, or habitual ideas, (b) fortuitous response bias, (c) irrational perseveration, (d) problem finding, (e) rational suppression, (f) irrational suppression, and (g) blissful ignorance. If the third parameter v is omitted, then the number of creative and noncreative outcomes reduces to just four, making creativity indistinguishable from irrational suppression. The alternative outcomes are then illustrated using the classic two‐string problem. Besides providing a more finely differentiated conception of creativity failures, the definition has critical implications regarding the processes and procedures required to generate highly creative ideas.     

Intuitions about declining marginal utility

In two studies, subjects judged the desirability of distributions of life expectancy or money. Their judgments showed declining marginal utility. That is, they were less sensitive to changes at the high end of each scale. Subjects also made utility ratings of the outcomes of individuals. And they made ratings of the distributions when these were described in terms of utility ratings rather than goods (years or dollars). The judgments of utility ratings showed equivalent declining marginal utility, even though they were based on utilities that themselves declined marginally. People extend their intuition about declining marginal utility to utility itself, as if utility had utility that declined marginally. In one experiment, a similar result was found with gambles: people are risk averse for utility as well as for money. We argue that this is an overextension of a reasonable heuristic and that this heuristic may account for one classic objection to utilitarian distributions. Copyright © 2001 John Wiley & Sons, Ltd.