Bertrand Munier

High Stakes and Acceptance Behavior in Ultimatum Bargaining

This paper presents the results of a within-subject experiment testing whether an increase in the monetary stakes by a factor of 50 – which had never been done before – influences individual behavior in a simple ultimatum bargaining game. Contrary to current wisdom, we found that lowest acceptable offers stated by the responder are proportionally lower in the high-stake condition than in the low-stake condition. This result may be interpreted in terms of the type of utility functions which characterize the subjects. However, in line with prior results, we find that an important increase of the monetary stakes in the ultimatum game has no effect on the offers made by the proposer. Yet, the present research suggests that the reasons underlying these offers are quite different when the stakes are high.

Compromise, negotiation and group decision

Overview.- Introductory Chapter.- Problems in Behavior under Risk : Individual vs. Group Decision Making.- I / Multicriteria Decision Making and Social Choice.- Risky Buying of Huge Quantities Under Time Pressure and Partial Information.- Main Sources of Inaccurate Determination, Uncertainty and Imprecision in Decision Models.- Inferential Modes in Applying Social Choice Theory.- The True Rule of The Marquis de Condorcet.- II / Game Theory, Cooperation and Negotiation.- Negotiation Procedure in a Coherent Game.- Fairness and Efficiency in the Siting of Public Service Facilities : A Negotiatory Approach.- A Fair Division Process in a Cooperative N-Person Context Where Side-Payments Are Allowed.- Evolutionarily Stable Strategies in the Prisoners Dilemma and Chicken Games.- Cooperation in Finitely Repeated Non-Cooperative Games.- III / Heurictic Systems for Negotiation and Group Decision.- A Redescription of a Negotiation Problem With Decision-Makers Under Pressure.- Generating and Editing Compromise Proposals for Negotiations.- Repeated Negotiation Sessions : A Generalized Gametheoretic Approach.- Conflict Analysis as a Negotiation Support System.- Can a Computer Aid Group Decision Making?.- A Multidimensional Model by a Multiactor System.- Subject and Name Index.

Thinking About Values in Prospect and Retrospect: Maximizing Experienced Utility

Decision-makers often do not or cannot predict at the time of choice howtheir tastes may change by the time the outcomes are experienced. This paperexplores the implications of making decisions by maximizing experiencedutility ex post rather than ex ante. Focusing on being satisfied with choicein retrospect results in quite different kinds of problems than aprospective orientation that projects ones current preferences into thefuture. We examine a number of ways that people can easily mistake theirreactions to outcomes in the future, and propose a series of hypothesesrelated to how people will be dissatisfied with their choices. Finally, werelate these barriers to good decisions to prescriptive processes thatassist people in making decisions with which they will be happy in thefuture.

Beliefs, interactions and preferences in decision making

Introduction to the Volume. Part 1: Individual Decision Under Risk and Uncertainty. Subjectively Expected State-Dependent Utility on State-Dependent Consequence Domains P.J. Hammond. Risk and Uncertainty Aversion on Certainty Equivalent Functions A. Montesano. The State-Contingent Approach to Risk Premiums and Comparative Statics in Generalised Expected Utility Theory J. Quiggin, R.G. Chambers. The Preservation of Comparative Statics Under Uncertainty E.E. Schlee. Part 2: Interaction, Information and Beliefs. Non-Additive Beliefs: From Decision to Game Theory H. Haller. A Positive Value of Information for a Non-Bayesian Decision-Maker A. Chassagnon, J.-C. Vergnaud. Preference Summaries for Stochastic Tree Rollback G.B. Hazen, J. Sounderpandian. Do We Really Need Numerous Observations to Select Candidates? (the D-Day Theorem) A. Billot. Education Signalling and Uncertainty J. Eichberger, D. Kelsey. Self-Awareness, Uncertainty and Markets with Overconfidence H.K. Hvide. Part 3: Interaction and Rationality. Combinatoric and Geometric Aspects of Some Probabilistic Choice Models - A Review J.-P. Doignon, et al. Probabilistic Interactions Among Players of a Cooperative Game M. Grabisch, M. Roubens. Arbitrage, Incomplete Models, and Other Peoples Brains R. Nau. Part 4: Experimental Research. Changing Decision Rules: Uncovering Behavioral Strategies Using Estimation/Classification (EC) M.A. El Gamal, D.M. Grether. The Intertemporal Choice Triangle B. Sopher, G. Gigliotti. Testing the Effects of Similarity and Real Payoffs on Choice D. Buschena, D. Zilberman. How Consistent are Probability Tradeoffs in Individual Preferences Under Risk?M. Abdellaoui, B. Munier. Part 5: Applications to Industry and Finance. Symmetrical Monotone Risk Aversion and Positive Bid-Ask Spreads M. Abouda, A. Chateauneuf. Time Resolution and Asymmetric Information: An Application to Financial Markets D. Ami. The Pricing of Optimal Insurance Policies J. Mayer, M.B. Ormiston. Multi-Attribute Decision Making and Generalized Expected Utility in Nuclear Power Plant Maintenance F. Beaudouin, et al. Index.

Bounded Rationality Modeling

This paper deals with bounded rationality as a way to describe behavior and focuses on the question of how to build such boundedly rational models. The first part is a discussion of the reasons why such models are needed and on the situations in which they can be regarded as more particularly useful. The second part examines three strategies of research towards bounded rationality modeling which have emerged in the last ten years and weights them. The concluding remarks offer a first link between the respective typologies of strategies and of situations and calls for additional experimental work by marketing scientists and economists together.

Market uncertainty and the process of belief formation

Economists have frequently participated in philosophical, statistical, and psychological debates on the foundations of probability. Recent examples (e.g., Allais, 1983) could be added to the names more traditionally cited in this respect. But as economists, i.e., as scientists making use of arguments grounded upon the specific tools of economic theory, they have said relatively little on the subject. French physiocrats, for example, maintained that probability should play a central role in the human and social sciences, but they failed to make use of the economic concepts underlying their analyses to explain in which way it should do so. Thus, they did not provide any economic foundation of probability. The same observation holds regarding Francis Y. Edgeworth when, a century later, he simply noted that banking was basically a business in probability.

Two stage rationality under risk: Experimental results and perspectives

Assuming that choices are made on grounds of unobservable heuristics and/or sets of routines, rational choices are nevertheless represented by use of choice functionals, the maximum of which on a given possibility set designates the individual’s choice. This paper argues that, in descriptive models, this does not imply at all a ‘strong’ (as opposed to bounded) type of individual rationality unless the functional is in some sense “universal”.Making use of such a criterion, the paper shows that it is possible to design an experimental protocol which allows distinguishing between these two modes of rational behavior. It shows further that decisions under risk appear as two-level rational ones, which is an experimental support to some of Herbert Simon’s views. Finally, it is shown that adaptiveness of rational behavior may be limited, in simple cases like choosing between static lotteries, to coefficients’ changes in a rank-dependent model.RiassuntoSupponendo che le scelte siano prese sulla base di curistiche non osservabili e/o di routines, la scelta razionale è sempre rappresentata per mezzo di funzionali di scelta, i cui punti di massimo su un certo insieme aminissibile rappresentano la scclta dell’individuo. Questo lavoro sostiene che, nei modelli descrittivi, ciò non implichi affatto una razionalità individuale ‘forte’ (invece che ‘limitata’), a meno che il funzionale non sia in qualche senso “universale”.Facendo ricorso a tale criterio, questo lavoro mostra che è possibile disegnare un protocollo sperimentale che consente di distinguere tra queste due modalità di comportamento razionale. Inoltre, mostra anche come le decisioni in condizioni di rischio appaiano come decisioni razionali a due livelli, offrendo una base empirica per alcuni punti di vista sostenuti da Herbert Simon. Infine, si mostra che l’adattabilità del comportamento razionale può essere limitata, in alcuni semplici esempi di scelta tra lotterie statiche, alle variazioni di coefficienti in un modello rank-dependent.

Are game theoretic concepts suitable negotiation support tools? From Nash equilibrium refinements toward a cognitive concept of rationality

If game theory is to be used as a negotiation support tool, it should be able to provide unambiguous recommendations for a target to aim at and for actions to reach this target. This need cannot be satisfied with the Nash equilibrium concept, based on the standard instrumental concept of rationality. These equilibria, as is well known, are generally multiple in a game. The concept of substantive or instrumental rationality has proved to be so pregnant, however, that researchers, instead of re-evaluating its use in game theory, have simply tried to design concepts related to the Nash equilibrium, but with the property of being unique in a game — i.e., they have devised ways ofselecting among Nash equilibria. These concepts have been labeledrefined Nash equilibria.The purpose of this paper is to show the following.(a)The different types of refined Nash equilibria, based on the principle of backward induction, can lead to severe contradictions within the framework itself. This makes these concepts utterly unsatisfactory and calls for a new appraisal of the reasoning process of the players.(b)The degree of confidence in the principle of backward induction depends upon the evaluation of potential deviations with respect to the extended Nash equilibrium concept used and upon the possible interpretations of such deviations by the different players. Our goal is to show that the nature of these possible interpretations reinforces the argument that a serious conceptual reappraisal is necessary.(c)Some form of forward induction should then become the real yardstick of rationality, extending Simonianprocedural rationality towards the concept ofcognitive rationality. This could open the way to a renewed game theoretic approach to negotiation support systems. Such a research program, which would be a revision of the basic game theoretic concepts, is dealt with in the end of the paper.

COGNITION AND UNCERTAINTY

In the first part, we try to give a representation of the process by which man endeavours to grasp uncertainty. We propose a backward exploration which we will modelize through an influence diagram and then we can draw a few conclusions from that representation for the axiomatics of Decision.In the second part, we deal with the processing of the information formatted in such a way, regarding both its temporal complexity and its elective complexity.The first part as the second one dealing with representation and the consequences for information processing of uncertainty cognition lead to a severe criticism of the expected utility hypothesis.To conclude, we suggest a few remarks on expert systems of decision aid under uncertainty.

Safety Policy as a Tool in New Technology Offering: A Flow Assurance Case

Flow Assurance technologies are currently experiencing steady progress. Most new technologies are in many ways riskier than older ones, but they are also more efficient. It would be optimal for offshore operators ready to buy some novel technology to select the right offer, given their respective safety policies, from all existing possibilities. But operators hardly know of all these possibilities; the contractors who develop new technology do. But how could the latter optimally select the design option which should be offered to a given operator, to best serve its needs? The present paper deals with this question by connecting technical possibilities with company strategies in an integrated and quantified model: the output data of a physical model are entered as input into a psycho-management risk model. As a result, one can compute optimal characteristics for each operator of a new technology. This helps the contractor sell and monitor its offer under uncertainty. It also induces the operator to buy the innovative technology. We use some specific software developed at GRID (Group of research on Risk, Information and Decision, affiliated to ENSAM) to assess safety policies of operators. A real case is analyzed and presented. We argue that our model produces insight, by revealing knowledge which officers of the contractor company in long lasting contact with a given operator have internally accumulated, but which they are not able to express under any operational format. Such knowledge is ignored by industrial engineering, but often turns out to be richer than what can be extracted from any available data. One difficulty is to manage the software’s session in such a way that officers will answer the questions. The other difficulty is to convince engineering and risk managers that the “Human factor” is much richer than it is given credit for in textbooks and even more accurate than most existing data. Thus, we substantially improve existing industrial management techniques as currently applied to offshore technology, and more generally existing practice in the industry.Copyright