Gary Gigliotti

Intransitive cycles: Rational choice or random error? An answer based on estimation of error rates with experimental data

The paper presents results from two new experiments designed to test between the ‘rational choice’ hypothesis and the ‘random error’ hypothesis for intransitive choice. Error probabilities and population shares for transitive and intransitive preference types are estimated from data collected in the first experiment. An unrestricted model (which treats intransitive patterns as true patterns) performs no better than a model that is restricted to transitive patterns. Analysis of the conditional distributions of choice patterns, using data from the second experiment, confirms more directly the main results of the first experiment: that observed intransitive choice patterns are due to random error.

A test of generalized expected utility theory

In two experiments we test Machinas Hypothesis II (fanning-out). In each experiment we analyze patterns of responses to hypothetical lottery choice questions within a Marschak-Machina triangle. One set of questions involves lotteries on the border of the triangle, an the other set of questions involves lotteries in the interior of the triangle (off the border). Our results show that a large proportion of the observed patterns in the on-border treatment support Hypothesis II, with a considerable amount of fanning-out behavior observed. The patterns observed in the off-border treatment are significantly different from those in the on-border treatment. Hypothesis II performs well in the off-border treatment because expected utility theory itself, which satisfies the restrictions of Hypothesis II, performs well.

Violations of Present-value Maximization in Income Choice

We report results of an experiment testing for present-value maximization in intertemporal income choice. Two-thirds of subjects did not maximize present value. Through a series of experimental manipulations that impose costs on non-present value maximizers, we are able to reduce the level of violations substantially. We find, however, that a sizeable proportion of subjects continue to systematically violate present-value principles. Our interpretation is that these subjects either cannot or choose not to distinguish between t income and t expenditure in making their choices. Self-management, bounded rationality, and sequence preference are suggested as possible explanations for such behavior.

Total Utility, Overlapping Generations and Optimal Population

The necessary and sufficient conditions for the solution to an optimal population growth model with overlapping generations, using the sum of total utility per generation as the objective function are derived. The solution for a specific, steady state model and an example are presented, and compared to that for a similar model without overlapping generations. In both cases, a positive, but less than infinite, optimal growth rate is found. Next, since an additively separable individual utility function is used, the differences between a total utility per generation model and a total utility per period model, a la Lerner, are discussed. Finally, the results of the total utility model are compared to those from a model in which the discounted sum of per capita utility is the objective function. An extension to the Samuelson-Lerner Utility Paradox, concerning the optimal rate of population growth, is discussed.

The Free-Rider Paradox: Theory, Evidence, and Teaching

The free-rider problem involves extreme empirical implications, and, as long as instructors continue to assert that narrow self-interest is the sole motivator of rational behavior, thoughtful students may not take this issue and the related economic analysis seriously.

The right to refuse treatment: An application of the economic principles of decision-making under uncertainty

When courts do not defer to professional judgment, alternative ways must be used to make treatment decisions for persons who are deemed incompetent. Rather than impose the preferences of society on the mentally ill individual, courts have favored alternative procedures. The two most common approaches are substituted judgment and best interests. In using both the substituted judgment standard and the best interest standard the guardian of a patient who is judged incompetent to make a treatment decision tries to make the decision the patient would have made, had he been competent. The guardian must consider the individuals attitude toward risk in making this assessment. Substituted judgment can be used when clear and convincing evidence of the patients preferences exists. The evidence would come from a study of the patients expressed attitudes towards medical treatment and behavior before he or she became incompetent. This approach is effective only if the patient has revealed his or her preferences toward relevant medical treatment in the past. The best interest standard is used when no clear and convincing evidence of the patients treatment preferences exists. The treatment decisions of competent patients whose characteristics are similar to the incompetent patients, and who have faced a similar situation, can be used as a proxy for the decision the incompetent patient would have made. Using the choice function of similar people may make it possible to develop a reasonably objective basis for determining what course of action is in the patients best interest.

Comment on Craven

On commente un article de John Craven (1982) dans lequel il proposait une solution au paradoxe liberal en restreignant le domaine de la regle de decision collective aux preferences individuelles

Total utility, overlapping generations and social security

Abstract In Gigliotti (1983), necessary and sufficient conditions for an optimal path were found in an overlapping generations model that maximized the infinite discounted sum of total utility per generation. Here we show, as Samuelson (1975b) did in the per capita utility model, that, with an appropriate social security system, individuals, acting to maximize their own utility, will save enough to finance the optimal steady state growth of the economy in a total utility model.

The Intertemporal Choice Triangle

We review previous and current experimental work on intertemporal choice based on the Intertemporal Choice Triangle paradigm. The paradigm is a framework for theoretical and experimental analysis of intertemporal choice that is analogous to the Marschak-Machina Probability Triangle which has been used to great effect in the analysis of choice under risk. In this paradigm, the hypothesis of present value maximization plays the role of an ideal benchmark relative to which actual intertemporal choice behavior can be compared, much as the hypothesis of expected utility maximization serves as a benchmark in experimental studies of choice under risk. We also review some preliminary tests of a new theoretical model of intertemporal choice, Order-Dependent Present Value Theory, which has a structure analogous to Rank-Dependent models of choice under risk, and which is testable within the intertemporal triangle framework.

The conflict between naive and sophisticated choice as a form of the ‘liberal paradox’

Pareto-inefficient perfect equilibria can be represented by the liberal paradox approach of Sen, appropriately reconfigured to model intertemporal decision-making by an individual. We show that the preference profile used by Grout (1982) to construct a case in which naive choice Pareto-dominates sophisticated choice can be so represented, if tastes change and if the individual can make decisions at time t, which restrict or determine opportunities available in period t + 1 and beyond. This ability to make a decision that binds oneself in the future is a form of ‘rights assignment’. We also show how two resolutions of the liberal paradox work out in the individual decision framework.