Exceeding expectations: stochastic dominance as a general decision theory
Christian Tarsney (Global Priorities Institute, Oxford University)
GPI Working Paper No. 3-2020
The principle that rational agents should maximize expected utility or choiceworthiness is intuitively plausible in many ordinary cases of decision-making under uncertainty. But it is less plausible in cases of extreme, low-probability risk (like Pascal’s Mugging), and intolerably paradoxical in cases like the St. Petersburg and Pasadena games. In this paper I show that, under certain conditions, stochastic dominance reasoning can capture most of the plausible implications of expectational reasoning while avoiding most of its pitfalls. Specifically, given sufficient background uncertainty about the choiceworthiness of one’s options, many expectation-maximizing gambles that do not stochastically dominate their alternatives ‘in a vacuum’ become stochastically dominant in virtue of that background uncertainty. But, even under these conditions, stochastic dominance will not require agents to accept options whose expectational superiority depends on sufficiently small probabilities of extreme payoffs. The sort of background uncertainty on which these results depend looks unavoidable for any agent who measures the choiceworthiness of her options in part by the total amount of value in the resulting world. At least for such agents, then, stochastic dominance offers a plausible general principle of choice under uncertainty that can explain more of the apparent rational constraints on such choices than has previously been recognized.
Other working papers
Misjudgment Exacerbates Collective Action Problems – Joshua Lewis (New York University) et al.
In collective action problems, suboptimal collective outcomes arise from each individual optimizing their own wellbeing. Past work assumes individuals do this because they care more about themselves than others. Yet, other factors could also contribute. We examine the role of empirical beliefs. Our results suggest people underestimate individual impact on collective problems. When collective action seems worthwhile, individual action often does not, even if the expected ratio of costs to benefits is the same. …
Funding public projects: A case for the Nash product rule – Florian Brandl (Stanford University), Felix Brandt (Technische Universität München), Dominik Peters (University of Oxford), Christian Stricker (Technische Universität München) and Warut Suksompong (National University of Singapore)
We study a mechanism design problem where a community of agents wishes to fund public projects via voluntary monetary contributions by the community members. This serves as a model for public expenditure without an exogenously available budget, such as participatory budgeting or voluntary tax programs, as well as donor coordination when interpreting charities as public projects and donations as contributions. Our aim is to identify a mutually beneficial distribution of the individual contributions. …
Heuristics for clueless agents: how to get away with ignoring what matters most in ordinary decision-making – David Thorstad and Andreas Mogensen (Global Priorities Institute, Oxford University)
Even our most mundane decisions have the potential to significantly impact the long-term future, but we are often clueless about what this impact may be. In this paper, we aim to characterize and solve two problems raised by recent discussions of cluelessness, which we term the Problems of Decision Paralysis and the Problem of Decision-Making Demandingness. After reviewing and rejecting existing solutions to both problems, we argue that the way forward is to be found in the distinction between procedural and substantive rationality…