Search for: All records

Traditional models of rational choice assume that preferences are complete, but the completeness axiom is neither normatively compelling nor psychologically plausible. Building on recent work in economics, we develop a rational analysis of decision making with incomplete preferences. The analysis sheds surprising light on a range of well-known behavioral “anomalies,” including the endowment effect, status quo maintenance, the sunk cost effect, and coherent arbitrariness. We propose a two-part division of rational choice theory—into preference theory and “implementation theory”—and show how conservative and coherently arbitrary policies can effectively implement incomplete preferences. The two-part normative framework motivates a psychological distinction between evaluation and implementation phases in decision making. We argue that the endowment effect and related phenomena, which have usually been attributed to loss aversion in the evaluation phase, are better explained by conservatism in the implementation phase. The rational analysis challenges the normative adequacy of expected utility theory and raises questions about the explanatory scope of prospect theory. It illustrates the rich interplay between psychological models of value structure and normative models of rational choice. 

Abstract Framing effects play a central role in the debate regarding human rationality. They violate the normative principle ofdescription invariance, which states that merely redescribing options or outcomes in equivalent ways should not affect judgments or decisions. Description invariance is considered by many decision researchers to be “normatively unassailable”, and violations are widely regarded as demonstrations of systematic irrationality. This article develops an alternative perspective on invariance violations, applying Funder’s (1987) distinction between “errors” and “mistakes”. Description invariance implicitly assumes that (1) rational preferences must be complete and (2) frames do not convey choice-relevant information. We argue that both assumptions often do not hold. When they fail, framing effects in the laboratory are not “errors”, and they do not provide evidence for “mistakes” in natural environments. Furthermore, recent findings suggest that participants often do not regard different responses to different frames as unreasonable, and presenting them with arguments for and against description invariance has little effect on their views. Finally, we argue that similar lessons generalize to other coherence norms, such as procedure invariance and independence of irrelevant alternatives. 

The normative principle of description invariance presupposes that rational preferences must be complete. The completeness axiom is normatively dubious, however, and its rejection opens the door to rational framing effects. In this commentary, we suggest that Bermúdez’s insightful challenge to the standard normative view of framing can be clarified and extended by situating it within a broader critique of completeness. 

Human decisions are context dependent in ways that violate classical norms of rational choice. However, these norms implicitly depend on idealized descriptive assumptions that are often unrealistic. We focus on one such assumption: that information is constant across contexts. Choice contexts often supply subtle cues—which may be embedded in frames, procedures, or menus—to which human decision makers can be highly sensitive. We review recent evidence that some important context effects reflect dynamically coherent belief and preference updating, in response to ecologically valid cues. This evidence paints a more nuanced picture of human rationality in natural choice environments and opens up prospects for nonpaternalistic forms of choice architecture.