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Dual criteria decisions
Department of Economics, Copenhagen Business School, Copenhagen, Denmark.
Department of Risk Management & Insurance and Center for the Economic Analysis of Risk, Robinson College of Business, Georgia State University, United States.
Department of Economics, Copenhagen Business School, Copenhagen, Denmark; Durham University Business School, Durham University, United Kingdom.
Robinson College of Business, Georgia State University, United States.ORCID iD: 0000-0001-8616-3318
2014 (English)In: Journal of Economic Psychology, ISSN 0167-4870, E-ISSN 1872-7719, Vol. 41, p. 101-113Article in journal (Refereed) Published
Abstract [en]

The most popular models of decision making use a single criterion to evaluate projects or lotteries. However, decision makers may actually consider multiple criteria when evaluating projects. We consider a dual criteria model from psychology. This model integrates the familiar tradeoffs between risk and utility that economists traditionally assume, allowance for rank-dependent decision weights, and consideration of income thresholds. We examine the issues involved in full maximum likelihood estimation of the model using observed choice data. We propose a general method for integrating the multiple criteria, using the logic of mixture models, which we believe is attractive from a decision-theoretic and statistical perspective. The model is applied to observed choices from a major natural experiment involving intrinsically dynamic choices over highly skewed outcomes. The evidence points to the clear role that income thresholds play in such decision making, but does not rule out a role for tradeoffs between risk and utility or probability weighting.

Place, publisher, year, edition, pages
Elsevier, 2014. Vol. 41, p. 101-113
Keywords [en]
Individual decision making, Multiple criteria, Natural experiment, Risk
National Category
Economics and Business Psychology
Identifiers
URN: urn:nbn:se:oru:diva-68848DOI: 10.1016/j.joep.2013.02.006ISI: 000335619800010Scopus ID: 2-s2.0-84897963697OAI: oai:DiVA.org:oru-68848DiVA, id: diva2:1247330
Available from: 2018-09-11 Created: 2018-09-11 Last updated: 2018-09-13Bibliographically approved

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Rutström, Elisabet

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