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Theory and Decision
Published in: Theory and Decision 2/2014

01-08-2014

Axiomatizing bounded rationality: the priority heuristic

Authors: Mareile Drechsler, Konstantinos Katsikopoulos, Gerd Gigerenzer

Published in: Theory and Decision | Issue 2/2014

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Abstract

This paper presents an axiomatic framework for the priority heuristic, a model of bounded rationality in Selten’s (in: Gigerenzer and Selten (eds.) Bounded rationality: the adaptive toolbox, 2001) spirit of using empirical evidence on heuristics. The priority heuristic predicts actual human choices between risky gambles well. It implies violations of expected utility theory such as common consequence effects, common ratio effects, the fourfold pattern of risk taking and the reflection effect. We present an axiomatization of a parameterized version of the heuristic which generalizes the heuristic in order to account for individual differences and inconsistencies. The axiomatization uses semiorders (Luce, Econometrica 24:178–191, 1956), which have an intransitive indifference part and a transitive strict preference component. The axiomatization suggests new testable predictions of the priority heuristic and makes it easier for theorists to study the relation between heuristics and other axiomatic theories such as cumulative prospect theory.
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Appendix
Available only for authorised users
Footnotes
1
Some important empirical evidence, such as the possibility effect of Kahneman and Tversky (1979), refers to zero minimum outcomes; Rubinstein (1988) also makes this assumption.
 
2
The priority heuristic, as stated in Sect. 2, compares probabilities of minimum outcomes. Given the additivity of probabilities, for gambles with two outcomes the probability of the maximum outcome is the complement of the probability of minimum outcomes. For convenience, we consider the mathematically equivalent case where the probabilities of maximum outcomes are compared.
 
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Metadata
Title
Axiomatizing bounded rationality: the priority heuristic
Authors
Mareile Drechsler
Konstantinos Katsikopoulos
Gerd Gigerenzer
Publication date
01-08-2014
Publisher
Springer US
Published in
Theory and Decision / Issue 2/2014
Print ISSN: 0040-5833
Electronic ISSN: 1573-7187
DOI
https://doi.org/10.1007/s11238-013-9393-0

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