IDEAS home Printed from https://ideas.repec.org/a/eee/gamebe/v123y2020icp22-40.html
   My bibliography  Save this article

Theories and cases in decisions under uncertainty

Author

Listed:
  • Gilboa, Itzhak
  • Minardi, Stefania
  • Samuelson, Larry

Abstract

We present and axiomatize a model combining and generalizing theory-based and analogy-based reasoning in decision under uncertainty. An agent has beliefs over a set of theories describing the data generating process, given by decision weights. She also puts weight on similarity to past cases. When a case is added to her memory and a new problem is encountered, two types of learning take place. First, the decision weight assigned to each theory is multiplied by its conditional probability. Second, subsequent problems are assessed for their similarity to past cases, including the newly-added case. If no weight is put on past cases, the model is equivalent to Bayesian reasoning over the theories. However, when this weight is positive, the learning process continually adjusts the balance between case-based and theory-based reasoning. In particular, a “black swan” which is considered a surprise by all theories would shift the weight to case-based reasoning.

Suggested Citation

  • Gilboa, Itzhak & Minardi, Stefania & Samuelson, Larry, 2020. "Theories and cases in decisions under uncertainty," Games and Economic Behavior, Elsevier, vol. 123(C), pages 22-40.
  • Handle: RePEc:eee:gamebe:v:123:y:2020:i:c:p:22-40
    DOI: 10.1016/j.geb.2020.06.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0899825620300798
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.geb.2020.06.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    2. Itzhak Gilboa & David Schmeidler, 1995. "Case-Based Decision Theory," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 605-639.
    3. , & ,, 2012. "Subjectivity in inductive inference," Theoretical Economics, Econometric Society, vol. 7(2), May.
    4. Matthew Embrey & Guillaume R Fréchette & Sevgi Yuksel, 2018. "Cooperation in the Finitely Repeated Prisoner’s Dilemma," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(1), pages 509-551.
    5. Gilboa, Itzhak & Samuelson, Larry & Schmeidler, David, 2013. "Dynamics of inductive inference in a unified framework," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1399-1432.
    6. Reinhart, Karmen & Rogoff, Kenneth, 2009. ""This time is different": panorama of eight centuries of financial crises," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 77-114, March.
    7. Ignacio Palacios-Huerta & Oscar Volij, 2009. "Field Centipedes," American Economic Review, American Economic Association, vol. 99(4), pages 1619-1635, September.
    8. Han Bleichrodt & Martin Filko & Amit Kothiyal & Peter P. Wakker, 2017. "Making Case-Based Decision Theory Directly Observable," American Economic Journal: Microeconomics, American Economic Association, vol. 9(1), pages 123-151, February.
    9. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 215-268, November.
    10. John C. Harsanyi, 1967. "Games with Incomplete Information Played by "Bayesian" Players, I-III Part I. The Basic Model," Management Science, INFORMS, vol. 14(3), pages 159-182, November.
    11. Selten, Reinhard & Stoecker, Rolf, 1986. "End behavior in sequences of finite Prisoner's Dilemma supergames A learning theory approach," Journal of Economic Behavior & Organization, Elsevier, vol. 7(1), pages 47-70, March.
    12. Veronika Köbberling & Peter P. Wakker, 2003. "Preference Foundations for Nonexpected Utility: A Generalized and Simplified Technique," Mathematics of Operations Research, INFORMS, vol. 28(3), pages 395-423, August.
    13. Wakker, Peter, 1989. "Continuous subjective expected utility with non-additive probabilities," Journal of Mathematical Economics, Elsevier, vol. 18(1), pages 1-27, February.
    14. Drew Fudenberg & David K. Levine, 2016. "Whither Game Theory? Towards a Theory of Learning in Games," Journal of Economic Perspectives, American Economic Association, vol. 30(4), pages 151-170, Fall.
    15. Drew Fudenberg & David K Levine, 2016. "Whither Game Theory?," Levine's Working Paper Archive 786969000000001307, David K. Levine.
    16. Raffaella Giacomini & Vasiliki Skreta & Javier Turen, 2020. "Heterogeneity, Inattention, and Bayesian Updates," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(1), pages 282-309, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hill, Brian, 2022. "Updating confidence in beliefs," Journal of Economic Theory, Elsevier, vol. 199(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gilboa, Itzhak & Samuelson, Larry & Schmeidler, David, 2022. "Learning (to disagree?) in large worlds," Journal of Economic Theory, Elsevier, vol. 199(C).
    2. Anat Bracha & Elke U. Weber, 2012. "A psychological perspective of financial panic," Public Policy Discussion Paper 12-7, Federal Reserve Bank of Boston.
    3. Tölö, Eero, 2019. "Predicting systemic financial crises with recurrent neural networks," Bank of Finland Research Discussion Papers 14/2019, Bank of Finland.
    4. Dani Rodrik, 2018. "Populism and the economics of globalization," Journal of International Business Policy, Palgrave Macmillan, vol. 1(1), pages 12-33, June.
    5. Caruso, Alberto & Reichlin, Lucrezia & Ricco, Giovanni, 2019. "Financial and fiscal interaction in the Euro Area crisis: This time was different," European Economic Review, Elsevier, vol. 119(C), pages 333-355.
    6. Daisuke Ikeda & Toan Phan & Timothy Sablik, 2020. "Asset Bubbles and Global Imbalances," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, vol. 20, pages 1-4, January.
    7. Karen K. Lewis, 2011. "Global Asset Pricing," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 435-466, December.
    8. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "Recovery from Financial Crises: Evidence from 100 Episodes," American Economic Review, American Economic Association, vol. 104(5), pages 50-55, May.
    9. Ibrahim Ari & Muammer Koc, 2018. "Sustainable Financing for Sustainable Development: Understanding the Interrelations between Public Investment and Sovereign Debt," Sustainability, MDPI, vol. 10(11), pages 1-25, October.
    10. Steven J. Davis & John C. Haltiwanger & Kyle Handley & Ben Lipsius & Josh Lerner & Javier Miranda, 2021. "The economic effects of private equity buyouts," Jena Economics Research Papers 2021-013, Friedrich-Schiller-University Jena.
    11. Lamperti, Francesco & Bosetti, Valentina & Roventini, Andrea & Tavoni, Massimo & Treibich, Tania, 2021. "Three green financial policies to address climate risks," Journal of Financial Stability, Elsevier, vol. 54(C).
    12. Manuel Funke & Moritz Schularick & Christoph Trebesch, 2023. "Populist Leaders and the Economy," American Economic Review, American Economic Association, vol. 113(12), pages 3249-3288, December.
    13. Enrico Perotti & Magdelena Rola-Janicka, 2019. "Funding Shocks and Credit Quality," Tinbergen Institute Discussion Papers 19-060/IV, Tinbergen Institute.
    14. Roos, Michael W. M., 2015. "The macroeconomics of radical uncertainty," Ruhr Economic Papers 592, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    15. Roy, Saktinil & Kemme, David M., 2012. "Causes of banking crises: Deregulation, credit booms and asset bubbles, then and now," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 270-294.
    16. Christoph Trebesch, 2019. "Resolving sovereign debt crises: the role of political risk," Oxford Economic Papers, Oxford University Press, vol. 71(2), pages 421-444.
    17. Mr. Marco Arena & Serpil Bouza & Ms. Era Dabla-Norris & Mrs. Kerstin Gerling & Lamin Njie, 2015. "Credit Booms and Macroeconomic Dynamics: Stylized Facts and Lessons for Low-Income Countries," IMF Working Papers 2015/011, International Monetary Fund.
    18. Pogany, Peter, 2013. "Thermodynamic Isolation and the New World Order," MPRA Paper 49924, University Library of Munich, Germany.
    19. Prabheesh, K.P. & Anglingkusumo, Reza & Juhro, Solikin M., 2021. "The dynamics of global financial cycle and domestic economic cycles: Evidence from India and Indonesia," Economic Modelling, Elsevier, vol. 94(C), pages 831-842.
    20. Mala Raghavan & Mardi Dungey, 2015. "Should ASEAN-5 monetary policy-makers act pre-emptively against stock market bubbles?," Applied Economics, Taylor & Francis Journals, vol. 47(11), pages 1086-1105, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:gamebe:v:123:y:2020:i:c:p:22-40. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622836 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.