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Regular version of the site
Bachelor 2020/2021

Theory of Decision Making

Type: Elective course (HSE/NES Programme in Economics)
Area of studies: Economics
Delivered by: HSE/NES Undergraduate Programmes Curriculum Support
When: 2 year, 3, 4 module
Mode of studies: offline
Open to: students of one campus
Language: English
ECTS credits: 6

Course Syllabus

Abstract

The course covers fundamental notions that underlie the theory of individual and collective decisionmaking. The course is divided in two parts, each covering separately the basic tenets of individual and social choice. The first part of the course is devoted to individual decision making problems. This part of the course will cover the classical theories of choice with and without uncertainty as well as some recent developments in the literature on (i) boundedly rational modes of behavior such as indecisiveness, status-quo bias, attraction effect and compromise effect; (ii) non-expected utility theories under risk and uncertainty. The second part of the course emphasizes the role of incentives and outlines the basic features of the implementation strategy. The approach is that of mechanisms design. A mechanism is a solution concept that resolves a problem in non suspect time. The course will review the basic principles that underlie sound mechanism design and their relationship with incentives. The notable applications we will consider involve the problem of provision of a pure public good, auction design and matching.
Learning Objectives

Learning Objectives

  • The course is designed to help students to understand fundamental notions that underlie the theory of individual and collective decisionmaking and. Emphasizes the role of incentives and outlines the basic features of the implementation strategy.
Expected Learning Outcomes

Expected Learning Outcomes

  • Understands fundamental notions that underlie the theory of individual and collective decisionmaking
  • Knows individual decision making problems
  • Understands the role of incentives and outlines the basic features of the implementation strategy
Course Contents

Course Contents

  • Part I
    • Rationalizable choice in consumer theory and abstract choice models. • Incomplete preferences and multi-utility representations. • Further anomalies and related choice models: Status-quo bias, attraction and compromise effects. • Risk and uncertainty: Expected utility with and without the completeness axiom. • Allais paradox and non-expected utility under risk: Cautious expected utility, disappointment aversion, theories with the betweenness axiom, rank dependent utility. • Ellsberg paradox and non-expected utility under uncertainty: Choquet expected utility, maxmin preferences, recursive preferences, second-order expected utility.
  • Part II
    • Introducing the concept of an allocation rule. Pareto efficiency and its implications on social choice. • Implementation in dominant strategies. Strategy-proofness and related axioms. • Quasi-linear preferences and the provision of a pure public good. Vickery-Clarke-Groves Mechanisms. • Pareto Undominated Mechanisms. • Bayesian Implementation and Auction Design. • Strategy-proof matching and applications.
Assessment Elements

Assessment Elements

  • non-blocking Home assignments
  • non-blocking Midterm test
  • non-blocking Final test
  • non-blocking Home assignments
  • non-blocking Midterm test
  • non-blocking Final test
Interim Assessment

Interim Assessment

  • Interim assessment (4 module)
    0.4 * Final test + 0.2 * Home assignments + 0.4 * Midterm test
Bibliography

Bibliography

Recommended Core Bibliography

  • F J Anscombe, & R J Aumann. (2000). A Definition of Subjective Probability. Levine’s Working Paper Archive. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.cla.levarc.7591
  • Gilboa, I., & Schmeidler, D. (1986). Maxmin Expected Utility with a Non-Unique Prior. Foerder Institute for Economic Research Working Papers. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.ags.isfiwp.275405
  • Gul, F. (1991). A Theory of Disappointment Aversion. Econometrica, (3), 667. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.ecm.emetrp.v59y1991i3p667.86
  • Ozgur Evren Y, & Efe A. Ok Z. (2008). On the Multi-Utility Representation of Preference Relations. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.255DEBFC
  • Truman F. Bewley. (1986). Knightian Decision Theory: Part 1. Cowles Foundation Discussion Papers. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.cwl.cwldpp.807

Recommended Additional Bibliography

  • Daniel Kahneman, Jack L. Knetsch, & Richard H. Thaler. (1991). Anomalies: The endowment effect, loss aversion, and status quo bias. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.D8BC9D81
  • David Dillenberger Y. (2009). Preferences for One-Shot Resolution of Uncertainty and Allais-Type Behavior,” Working paper. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.FE6FC525
  • Huber, J., Payne, J. W., & Puto, C. (1982). Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis. Journal of Consumer Research, 9(1), 90–98. https://doi.org/10.1086/208899
  • Juan Dubra, Fabio Maccheroni, & Efe Oki. (2001). Expected utility theory without the completeness axiom. ICER Working Papers - Applied Mathematics Series. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.icr.wpmath.11.2001
  • Ok, E. A., Ortoleva, P., & Riella, G. (2015). Revealed (P)Reference Theory†. American Economic Review, 105(1), 299–321. https://doi.org/10.1257/aer.20111046
  • Simone Cerreia-Vioglio, David Dillenberger, & Pietro Ortoleva. (2014). Cautious Expected Utility and the Certainty Effect. PIER Working Paper Archive. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.pen.papers.14.005
  • Yusufcan Masatlioglu, & Efe A. Ok. (2005). Rational choice with status quo bias. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.66E94E56