Marcello Basili

Shackle and Modern Decision Theory

The paper discusses the role of George L.S. Shackle in fostering an unconventional approach to individual decision making. Up until the early 1970s Shackle was the single critic of the probabilistic approach to decision making who proposed an alternative formal corpus for dealing with uncertainty. The main aim of the paper is to analyse Shackles non-probabilistic conceptualization of individual decisions under uncertainty from a specific viewpoint, namely that of a possible connection between his theory and one of the most interesting recent approaches to decision under uncertainty, the so-called non-additive probability approach of Gilboa and Schmeidler. The paper shows that these developments in modern decision theory take Shackles issue seriously and confirm that the reliance of strict Bayesian theory on probabilistic judgements based on point-probability estimates, a reliance that Shackle intended to oppose, is untenable. Non-additive decision theory also provides a usage of non-additive probability distributions in choice that is an alternative to Shackles approach of using a qualitative notion of probability, such as potential surprise.

Extreme events and entropy: A multiple quantile utility model

This paper introduces a multiple quantile utility model of Cumulative Prospect Theory in an ambiguous setting. We show a representation theorem in which a prospect is valued by a composite value function. The composite value function is able to represent asymmetric attitude on extreme events and a rational prudence on ordinary events.

The option value of the UK 3G Telecom licences: Was too much paid?

In this article the aggregate option value of the UK 3G telecom licences is evaluated. Revenues, capital and opertaing costs of UMTS business are calculated for the period of licences’ duration and are employed to show that the aggregate revenue extracted by the UK’s Government is (slightly) lower than the aggregate price of licences paid by winning telecom companies.

Aggregation of coherent experts opinion: a tractable extreme-outcomes consistent rule

The paper defines a consensus distribution with respect to experts’ opinions by a multiple quantile utility model. The paper points out that the Steiner Point is the representative consensus probability. The new rule of experts’ opinions aggregation, that can be evaluated by the Shapley value in a simple way, is prudential and coherent.

Understanding the Risk of an Avian Flu Pandemic: Rational Waiting or Precautionary Failure?

The precautionary principle (PP) has been proposed as the proper guide for the decision-making criteria to be adopted in the face of the new catastrophic risks that have arisen in the last decades. This article puts forward a workable definition of the PP based on the so-called alpha-maximin expected utility approach, applying it to the possible outbreak of the avian flu disease among humans. Moreover, it shows how the shortage and/or lack of effective drugs against the infection of the virus A(H5N1) among humans can be considered a precautionary failure.

Environment, inequality and collective action

Inequality, Growth And The Environment Globalisation And Sustainable Development Income Inequality And The Environmental Kuznets Curve Beyond Accumulation And Technical Progress: Negative Externalities As An Engine Of Economic Growth Unequal Effects Of Environment Changes Navigating In A Second-Best World: Ecological Distribution, Historical Liability And Social Choice Poverty Alleviation Environment And Sustainable Development Implication For The Management Of Natural Capital Inequality And Environmental Policy Inequality And Collective Action Towards The Environment Biodiversity As A Local Public Good Collective Action On The Commons The Role Of Inequality Overcoming Asymmetries In The Commons With Sub Optimal Strategies: An Experimental Exploration In The Field Institutions, Inequalities And The Environment Environment And Global Public Goods Economic Institutions And Governance Of The Commons Decision Making Under Uncertainty And Irreversibility: A Rational Approach To The Precautionary Principle.

Probabilistic versus Non-probabilistic Decision Making: Savage, Shackle and Beyond

This paper discusses the evolution of decision theory after Savages Foundations. Two developments are examined. First, it is presented the rationale of Shackles proposal to abandon probabilistic decision making. Second, it is discussed the axiomatisation provided by the non-additive probability approach to account for the experimental evidence originated by the Ellsberg Paradox. An attempt is made to establish a connection between Shackles non-probabilistic instances and non-additive probabilistic decision making. The main outgrowth of the paper is that the similarities between the non-additive approach and Shackles theory are not limited to a number of methodological statements. In fact, it is also the formal measures used in the two contexts for representing individual preferences in uncertain environments that resemble each other.

Pharmaceutical interventions for mitigating an influenza pandemic: modeling the risks and health-economic impacts

Model-based analyses built on burden-of-disease and cost–effectiveness theory predict that pharmaceutical interventions may efficiently mitigate both the epidemiologic and economic impact of an influenza pandemic. Pharmaceutical interventions typically encompass the application of (pre)pandemic influenza vaccines, other vaccines (notably pneumococcal), antiviral treatments and other drug treatment (e.g., antibiotics to target potential complications of influenza). However, these models may be too limited to capture the full macro-economic impact of pandemic influenza. The aim of this article is to summarize current health-economic modeling approaches to recognize the strengths and weaknesses of these approaches, and to compare these with more recently proposed alternative methods. We conclude that it is useful, particularly for policy and planning purposes, to extend modeling concepts through the application of alternative approaches, including insurers’ risk theories, human capital approaches and sectoral and full macro-economic modeling. This article builds on a roundtable meeting of the Pandemic Influenza Economic Impact Group that was held in Boston, MA, USA, in December 2008.

Quasi-Option Value and Hard Uncertainty

The notion of intertemporal h-option value is introduced to extend to environmental decision-making problems of the concept of quasi-option value, defined by Arrow and Fisher and Henry, whenever an individual faces imprecise information, or hard uncertainty, represented by a non-additive measure over events. Under hard uncertainty and irreversibility, the decision-maker faces the intertemporal h-option value, that is an uncertainty premium of preservation, which represents the gain from being able to learn about the future consequences of irreversible actions. The intertemporal h-option value is a correction factor that has to be taken into account in evaluating the total economic value of feasible actions.

Institutions and the Precautionary Principle: The Case of Mad Cow Disease

In the presence of scientific uncertainty many actions may end up in a catastrophic event. Many argue that in such cases the precautionary principle should be adopted. Unfortunately this principle is not clear-cut. The main purpose of this paper is to set up a model, which allows establishing the determinants and consequently the level of the precautionary acceptable cost. The model allows treating in a single framework ambiguity, catastrophic events and agency problem. The acceptable cost will be essentially determined as the amount of transfers or subsidy that the public body should direct to the agents in order to elicit the level of effort which - on the basis of the principalis most pessimistic forecasts - has the higher chances of maximizing the principal welfare and preventing the catastrophic event. The model refers to the BSE epidemic but it could be easily applied to other situations in which Knightian uncertainty (ambiguity) makes catastrophic events quite likely.