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Prerationality as Avoiding Predictably Regrettable Consequences

Author

Listed:
  • Peter J. Hammond
Abstract
Following previous work on consequentialist decision theory, we consider an unrestricted domain of finite decision trees, including continuation subtrees, with: 1) decision nodes where the decision-maker must act; 2) chance nodes where a ?roulette lottery? with strictly positive probabilities that are defined a priori is resolved; 3) event nodes where a ?horse lottery? is resolved. A complete family of binary conditional base relations over Anscombe-Aumann lottery consequences is defined to be ?prerational? just in case there exists a behaviour rule that is defined throughout the tree domain which is explicable as avoiding, under all predictable circumstances, regrettable consequences. It is shown that a family of base relations is prerational if and only if: 1) each relation is complete and transitive; 2) each relation satisfies the independence axiom of expected utility theory; 3) the entire family satisfies a strict form of Anscombe and Aumann?s extension of Savage?s sure-thing principle. Assuming that the base relations satisfy non-triviality and a generalized form of state independence that holds even when consequence domains are state dependent, prerationality combined with continuity on Marschak triangles is equivalent to representation by a class of refined subjective expected utility functions that excludes zero probabilities.

Suggested Citation

  • Peter J. Hammond, 2022. "Prerationality as Avoiding Predictably Regrettable Consequences," Revue économique, Presses de Sciences-Po, vol. 73(6), pages 943-976.
    • Handle: RePEc:cai:recosp:reco_736_0943
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    prerational base relations; rational planning; decision trees; regrettable consequences; Anscombe-Aumann lotteries; preference ordering; independence axiom; sure-thing principle; subjective probability; subjective expected utility; Bayesian rationality; state independence;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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