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Confidence and decision

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  • Hill, Brian

Abstract

Many real-life decisions have to be taken on the basis of probability judgements of which the decision maker is not entirely sure. This paper develops a decision rule for taking such decisions, which incorporates the decision makerʼs confidence in his probability judgements according to the following maxim: the larger the stakes involved in a decision, the more confidence is required in a probability judgement for it to play a role in the decision. A formal representation of the decision makerʼs confidence is proposed and used to formulate a family of decision models conforming to this maxim. A natural member of this family is studied in detail. It is structurally simpler than other recent models of decision under uncertainty, which may make it easier to apply to practical decisions, whilst being axiomatically sound, permitting the separation of beliefs and tastes, and allowing comparative statics analysis of attitudes to choosing in the absence of confidence.

Suggested Citation

  • Hill, Brian, 2013. "Confidence and decision," Games and Economic Behavior, Elsevier, vol. 82(C), pages 675-692.
    • Handle: RePEc:eee:gamebe:v:82:y:2013:i:c:p:675-692
    DOI: 10.1016/j.geb.2013.09.009
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    Citations

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    Cited by:

    1. Hill, Brian, 2012. "Unanimity and the aggregation of multiple prior opinions," HEC Research Papers Series 959, HEC Paris.
    2. Brian Hill, 2012. "Confidence in preferences," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 39(2), pages 273-302, July.
    3. Loïc Berger & Massimo Marinacci, 2020. "Model Uncertainty in Climate Change Economics: A Review and Proposed Framework for Future Research," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 77(3), pages 475-501, November.
    4. Jingyi Xue, 2020. "Preferences with changing ambiguity aversion," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 69(1), pages 1-60, February.
    5. Brian Hill, 2022. "Updating confidence in beliefs," Post-Print hal-03503986, HAL.
    6. Hill, Brian, 2022. "Updating confidence in beliefs," Journal of Economic Theory, Elsevier, vol. 199(C).
    7. Henkel, Luca, 2024. "Experimental evidence on the relationship between perceived ambiguity and likelihood insensitivity," Games and Economic Behavior, Elsevier, vol. 145(C), pages 312-338.
    8. Fairley, Kim & Weitzel, Utz, 2017. "Ambiguity and risk measures in the lab and students’ real-life borrowing behavior," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 67(C), pages 85-98.
    9. Casey Helgeson & Richard Bradley & Brian Hill, 2018. "Combining probability with qualitative degree-of-certainty metrics in assessment," Climatic Change, Springer, vol. 149(3), pages 517-525, August.
    10. Borgonovo, E. & Cappelli, V. & Maccheroni, F. & Marinacci, M., 2018. "Risk analysis and decision theory: A bridge," European Journal of Operational Research, Elsevier, vol. 264(1), pages 280-293.
    11. Brian Hill, 2021. "Decision under Uncertainty," Post-Print hal-03504015, HAL.
    12. Hill, Brian, 2016. "Incomplete preferences and confidence," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 83-103.
    13. Bradley, Richard, 2024. "Catastrophe insurance decision making when the science is uncertain," LSE Research Online Documents on Economics 122508, London School of Economics and Political Science, LSE Library.
    14. Hill, Brian, 2023. "Beyond uncertainty aversion," Games and Economic Behavior, Elsevier, vol. 141(C), pages 196-222.
    15. Loic Berger & Massimo Marinacci, 2017. "Model Uncertainty in Climate Change Economics," Working Papers 616, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    16. Xiaoyu Cheng, 2019. "Relative Maximum Likelihood Updating of Ambiguous Beliefs," Papers 1911.02678, arXiv.org, revised Oct 2021.
    17. Brian Hill, 2023. "Beyond Uncertainty Aversion," Post-Print hal-02428398, HAL.

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    More about this item

    Keywords

    Confidence; Multiple priors; Confidence ranking; Cautiousness coefficient; Ambiguity;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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