Scientific Ambiguity and Climate Policy

Economic evaluation of climate policy traditionally treats uncertainty by appealing to expected utility theory. Yet our knowledge of the impacts of climate policy may not be of sufficient quality to be described by unique probabilistic beliefs. In such circumstances, it has been argued that the axioms of expected utility theory may not be the correct standard of rationality. By contrast, several axiomatic frameworks have recently been proposed that account for ambiguous knowledge. In this paper, we apply static and dynamic versions of a smooth ambiguity model to climate mitigation policy. We obtain a general result on the comparative statics of optimal abatement and ambiguity aversion, and then extend our analysis to a more realistic, dynamic setting, where we introduce scientific ambiguity into the well-known DICE model of the climate-economy system. For policy-relevant exogenous mitigation policies, we show that the value of emissions abatement increases as ambiguity aversion increases, and that this ‘ambiguity premium’ can in some plausible cases be very large. In these cases the effect of ambiguity aversion on welfare is comparable to that of other much studied welfare parameters. Thus ambiguity aversion may be an important neglected aspect of climate change economics, and seems likely to provide another argument for strong abatement policy.     

An axiomatic approach to choice under uncertainty with catastrophic risks

This paper analyses decision under uncertainty with catastrophic risks, and is motivated by problems emerging from global environmental risks. These are typically low-probability events with major irreversible consequences. For such risks, the Von Neumann–Morgenstern (NM) axioms for decision making under uncertainty are not appropriate, since they are shown here to be insensitive to low-probability events. The paper introduces an alternative set of axioms requiring sensitivity to both low- and large-probability events. Through a new representation theorem in functional analysis, the results characterize all the operators whose maximization leads to the fulfillment of these axioms. They involve a convex combination of expected utility and a criterion based on the desire to avoid low probability and potentially catastrophic events. It is shown that the new axioms help resolve the Allais paradox. Open questions about risk aversion, games under uncertainty and calculus of variations are discussed.     

Expected utility theory from the frequentist perspective

We present an axiomatization of expected utility from the frequentist perspective. It starts with a preference relation on the set of infinite sequences with limit relative frequencies. We consider three axioms parallel to the ones for the von Neumann–Morgenstern (vN–M) expected utility theory. Limit relative frequencies correspond to probability values in lotteries in the vN–M theory. This correspondence is used to show that each of our axioms is equivalent to the corresponding vN–M axiom in the sense that the former is an exact translation of the latter. As a result, a representation theorem is established: The preference relation is represented by an average of utilities with weights given by the relative frequencies.     

Is the expected utility maximization hypothesis refutable by finite market data: The case of two observations

It is shown that with only two observations on the asset demand functions of an investor, it is not possible to refute the hypothesis of expected utility maximization on the part of the investor as long as the axioms of revealed preference are satisfied.     

Consumer choice and revealed bounded rationality

We study two boundedly rational procedures in consumer behavior. We show that these procedures can be detected by conditions on observable demand data of the same type as standard revealed preference axioms. This provides the basis for a non-parametric analysis of boundedly rational consumer behavior mirroring the classical one for utility maximization.     

Assigning agents to a line

We consider the problem of assigning agents to slots on a line, where only one agent can be served at a slot and each agent prefers to be served as close as possible to his target. Our focus is on aggregate gap minimizing methods, i.e., those that minimize the total gap between targets and assigned slots. We first consider deterministic assignment of agents to slots, and provide a direct method for testing if a given deterministic assignment is aggregate gap minimizing. We then consider probabilistic assignment of agents to slots, and make use of the previous method to propose an aggregate gap minimizing modification of the classic random priority method to solve this class of problems. We also provide some logical relations in our setting among standard axioms in the literature on assignment problems, and explore the robustness of our results to several extensions of our setting.     

Ranking opportunity sets in a simple intertemporal framework

We extend the problem of ranking subsets (opportunity sets) of a set of alternatives to an intertemporal setting, whereby the agent makes a sequence of choice decisions over time. In particular, we show in a simple two-period model that an agent who satisfies five plausible axioms ranks opportunity sets in a lexicographic fashion. That is, the agent ranks opportunity sets based solely on the relative desirability of their first-period alternatives, and only if the first-period alternatives are thought equally desirable does the agent consider the second-period alternatives. We discuss this strong time-discounting result and the role of the axioms, and also show that the popular “independence” axioms employed in the existing “static” literature are inconsistent with some reasonable axioms regarding intertemporal choice.      

Optimal seedings in elimination tournaments

We study an elimination tournament with heterogenous contestants whose ability is common-knowledge. Each pair-wise match is modeled as an all-pay auction. Equilibrium efforts are in mixed strategies, yielding complex dynamics: endogenous win probabilities in each match depend on other matches’ outcome through the identity of the expected opponent in the next round. The designer seeds competitors according to their ranks. For tournaments with four players we find optimal seedings for three different criteria: (1) maximization of total tournament effort; (2) maximization of the probability of a final among the two top ranked teams; (3) maximization of the win probability for the top player. We also find the seedings ensuring that higher ranked players have a higher winning probability. We compare our predictions with data from NCAA basketball tournaments.     

Trembles in extensive games with ambiguity averse players

We introduce and analyze three definitions of equilibrium for finite extensive games with imperfect information and ambiguity averse players. In a setting where players’ preferences are represented by maxmin expected utility, as characterized in Gilboa and Schmeidler (J Math Econ 18(2):141–153, 1989), our definitions capture the intuition that players may consider the possibility of slight arbitrary mistakes. This generalizes the idea leading to trembling-hand perfect equilibrium as introduced in Selten (Int J Game Theory 4(1):25–55, 1975), by allowing for ambiguous trembles characterized by sets of distributions. We prove existence for two of our equilibrium notions and relate our definitions to standard equilibrium concepts with expected utility maximizing players. Our analysis shows that ambiguity aversion can lead to behavioral implications that are distinct from those attained under expected utility maximization, even if ambiguous beliefs only arise from the possibility of slight mistakes in the implementation of unambiguous strategies.     

The behavioral foundations of Austrian economics

Behavioral and experimental economics present challenges to the neoclassical theory of individual behavior, which is based on individuals making choices within the framework of utility functions that are assumed to have certain well-defined characteristics. Results in behavioral and experimental economics have shown that it is common for individual behavior to systematically deviate from the neoclassical axioms of utility maximization. Austrian economics is also based on axiomatic theories of utility maximization, but the assumptions underlying utility-maximizing behavior are much weaker in the Austrian approach. As a result, they have more solid behavioral foundations and are less subject to challenge by the empirical findings of behavioral and experimental economics. Neoclassical policy conclusions are often overly strong because of its behavioral foundations which are challenged by behavioral and experimental economics and are often misleading because of the comparative static nature of neoclassical welfare economics. For purposes of policy analysis, the Austrian approach provides better insights because of its more realistic behavioral foundations.     

Internal rationality, imperfect market knowledge and asset prices

We present a decision theoretic framework in which agents are learning about market behavior and that provides microfoundations for models of adaptive learning. Agents are ‘internally rational’, i.e., maximize discounted expected utility under uncertainty given dynamically consistent subjective beliefs about the future, but agents may not be ‘externally rational’, i.e., may not know the true stochastic process for payoff relevant variables beyond their control. This includes future market outcomes and fundamentals. We apply this approach to a simple asset pricing model and show that the equilibrium stock price is then determined by investors? expectations of the price and dividend in the next period, rather than by expectations of the discounted sum of dividends. As a result, learning about price behavior affects market outcomes, while learning about the discounted sum of dividends is irrelevant for equilibrium prices. Stock prices equal the discounted sum of dividends only after making very strong assumptions about agents? market knowledge.     

Asymmetric parametric division rules

We describe and characterize the family of asymmetric parametric division rules for the adjudication of conflicting claims on a divisible homogeneous good. As part of the characterization, we present two novel axioms which restrict how a division rule indirectly allocates between different versions of the same claimant. We also show that such division rules can alternately be represented as the maximization of an additively separable social welfare function.     

Revisiting Savage in a conditional world

Summary. I present an axiomatization of subjective expected utility and Bayesian updating in a conditional decision problem. This result improves our understanding of the Bayesian standard from two perspectives: 1) it uses a set of axioms which are weak and intuitive; 2) it provides a formal proof to results on the relation between dynamic consistency, expected utility and Bayesian updating which have never been explicitly proved in a fully subjective framework. Received: December 1, 2000; revised version: February 26, 2001     

Initial infrastructure development strategies for the transition to sustainable mobility

Within the Dutch transition policy framework, the transition to hydrogen-based transport is seen as a promising option towards a sustainable transport system. One aspect of such transition processes that is emphasized in transition management is learning about user behaviour and preferences. However, while earlier research on sustainable mobility acknowledges the importance of refuelling infrastructure, the question of how to unroll such an infrastructure and the role of user practices and user behaviour largely remains unanswered. In this paper we present an agent-based model to study the process of development from niche to market for hydrogen vehicles. We thereby focus on the role of users in this process and support our model by empirical data. Within this model the effects of different strategies for hydrogen infrastructure development on hydrogen vehicle fleet penetration are studied. More specifically, diffusion patterns for hydrogen vehicles are created through the interactions of consumers, refuelling stations and technological learning. The main result is that social network effects do influence the technological trajectory of hydrogen vehicles and thus should be taken into account by infrastructure developers and policymakers.     

On the existence of expected multi-utility representations

We prove the following facts related to the expected multi-utility representation of an affine preorder: If the prize space is not compact and if the lottery set consists of all probabilities on the prize space, standard independence and continuity axioms do not guarantee the existence of a (continuous) representation. If the prize space is σ-compact and lotteries have compact support, a representation exists. When the preorder in question is bounded, this result extends to the set of lotteries that consists of all probabilities on the prize space. For the case of monetary lotteries, the boundedness assumption in this last result can be dropped, provided that the preference relation at hand is monotone and risk-averse.     

Attitude toward imprecise information

This paper presents an axiomatic model of decision making under uncertainty which incorporates objective but imprecise information. Information is assumed to take the form of a probability–possibility set, that is, a set P of probability measures on the state space. The decision maker is told that the true probability law lies in P and is assumed to rank pairs of the form (P,f) where f is an act mapping states into outcomes. The key representation result delivers maxmin expected utility (MEU) where the min operator ranges over a set of probability priors—just as in the MEU representation result of Gilboa and Schmeidler [Maxmin expected utility with a non-unique prior, J. Math. Econ. 18 (1989) 141–153]. However, unlike the MEU representation, the representation here also delivers a mapping, , which links the probability–possibility set, describing the available information, to the set of revealed priors. The mapping is shown to represent the decision maker's attitude to imprecise information: under our axioms, the set of representation priors is constituted as a selection from the probability–possibility set. This allows both expected utility when the selected set is a singleton and extreme pessimism when the selected set is the same as the probability–possibility set, i.e., is the identity mapping. We define a notion of comparative imprecision aversion and show it is characterized by inclusion of the sets of revealed probability distributions, irrespective of the utility functions that capture risk attitude. We also identify an explicit attitude toward imprecision that underlies usual hedging axioms. Finally, we characterize, under extra axioms, a more specific functional form, in which the set of selected probability distributions is obtained by (i) solving for the “mean value” of the probability–possibility set, and (ii) shrinking the probability–possibility set toward the mean value to a degree determined by preferences.     

Reflecting inequality of claims in gains and losses

We consider the problem of dividing a resource among a group of agents who have conflicting claims on it. We follow the axiomatic approach and investigate the class of rules satisfying claims-inequality and claims-order preservation in gains and losses. We show that these axioms single out the proportional rule when there are more than three agents. This result confirms the central role of this rule and furthers our understanding of it in claims problems.     

Imprecision as an account of violations of independence and betweenness

In an earlier paper we put forward a model of imprecise preferences which accounted for various forms of preference reversal. In this paper we show that the same model can also explain the best-known violations of expected utility theory's axioms of independence and betweenness. It appears that a simple model of imprecise preferences can account for a broader range of anomalies than many of the more elaborate alternative theories developed to date.     

Extending an order on a Set to the power set: Some remarks on Kannai and Peleg's approach

Kannai and Peleg have shown that given an ordering over a set, it is impossible to induce an ordering over the power set satisfying certain plausible axioms. We prove an impossibility and also a possibility result in this context with closely related sets of axioms, and argue that the dividing line between impossibility and possibility here is rather thin. Also, we distinguish three possible intuitive interpretations for the formal framework of Kannai and Peleg, and argue that the acceptability of specific formal axioms may crucialy depend on the particular interpretation that one chooses to adopt.     

组织协同学习机制与整合优化方法研究

为回答通过何种组织学习形式提升组织学习效果的问题,系统梳理并分析现有组织学习相关成果存在的问题,结合协同机制原理构建组织协同学习模型。在此基础上,考虑到组织协同学习系统内部要素间存在复杂影响关系,借鉴ANP方法决策思想,提出从组织学习整体协同度方面整合优化组织协同学习系统复杂作用关系决策方法。结果表明,上述理论方法有效、可行,组织学习协同度能够较好地反映组织学习整体效果,对提升组织学习能力和创造企业竞争优势具有一定借鉴意义。