Week 11 - Rationality 1

rationality

what makes decisions to perform some action (rather than some other action) rational

consequentialist approach to rationality

decide to perform actions that maximize utility

functional level of decision making

mapping from states to actions that maximize long-term discounted expected utility given that yoy are in that state

algorithmic level of decision making

Q learning algorithm

physical level of decision making

ventral tegmental area, ventral medial prefrontal cortex, and striatum

a rational decision-maker is someone who

maximizes (long-term, cumulative), discounted expected utility

4 takes on rational decision making

1. maximize objective value

2. maximize expected objective value

3. maximize expected utility

4. maximize (long-term) discounted expected utility

maximize objective value

pick the one with the higher monetary value

con of maximize objective value

rule cant handle probabilities

maximize expected objective value

pick the value of the higher outcome multiplied by the probability the outcome will occur

calculate expected value by

multiply the dollar value withe the probability and add up the results

the maximize expected objective value gives a

long term average and not an individual choice

cons of maximizing expected objective value

fails to capture the fact that each succesive gian in money tends to yeild diminsihing additonal subjetive “benefit” to the chooser

2 things that the “maximize expected utility” can explain but the “maximize expected objective value” can not

1. diminishing marginal utility

2. expanding beyond financial decisions

with the maximize expected utility, we need to consider the

utility that the money has to us, which depends on how much money we already have, making it subjective

subjective utility of an option for a person

how desirable the option is for that person

diminishing marginal utility

the additional utility of the next dollar goes down the more dollars you have

with maximize expected utility, pick the one with

more utiles

the numbers convey information about the relative desirability of option for a single person, so they

cannot be meaningful compared across people

pro for the expected utility model

generalizes to more complex choice situations

the expected utility approach places the

candidate actions on the common scale using common currency

con of maximize expected utility

can’t handle delay

maximize discounted expected utility accounts for the

decrease in value due to delay (reduced subjective value)

Heuristics and Biases Research Program veiw on people being rational

No, especially at the automatic, intuitive level

Evolutionary Psychology Research Program veiw on people being rational

Yes, but only if the problem is posed in the right format

Neuroeconomics Research Program veiw on people being rational

Yes, especially at the automatic, intuitive (i.e. emotional/affective!) level