Skip to main content

Research Repository

Advanced Search

Dual criteria decisions

Andersen, S.; Harrison, G.W.; Lau, M.I.; Rutström, E.E.

Dual criteria decisions Thumbnail


Authors

S. Andersen

G.W. Harrison

E.E. Rutström



Abstract

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.

Citation

Andersen, S., Harrison, G., Lau, M., & Rutström, E. (2014). Dual criteria decisions. Journal of Economic Psychology, 41, 101-113. https://doi.org/10.1016/j.joep.2013.02.006

Journal Article Type Article
Online Publication Date Feb 26, 2013
Publication Date Apr 1, 2014
Deposit Date Jun 4, 2014
Publicly Available Date Mar 29, 2024
Journal Journal of Economic Psychology
Print ISSN 0167-4870
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 41
Pages 101-113
DOI https://doi.org/10.1016/j.joep.2013.02.006
Keywords Risk, Multiple criteria, Individual decision making, Natural experiment.
Public URL https://durham-repository.worktribe.com/output/1450689

Files

Accepted Journal Article (242 Kb)
PDF

Copyright Statement
NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Economic Psychology. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economic Psychology, 41, 2014, 10.1016/j.joep.2013.02.006.





You might also like



Downloadable Citations