Dual Criteria Decisions

Steffen Andersen, Glenn W. Harrison, Morten Igel Lau, Elisabet E. Rutström

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

The most popular models of decision making use a single criterion to evaluate projects or lotteries. However, decision makers may actually consider multiple criteria when evaluating projects. We consider a dual criteria model from psychology. This model integrates the familiar tradeoffs between risk and utility that economists traditionally assume, allowance for rank-dependent decision weights, and consideration of income thresholds. We examine the issues involved in full maximum likelihood estimation of the model using observed choice data. We propose a general method for integrating the multiple criteria, using the logic of mixture models, which we believe is attractive from a decision-theoretic and statistical perspective. The model is applied to observed choices from a major natural experiment involving intrinsically dynamic choices over highly skewed outcomes. The evidence points to the clear role that income thresholds play in such decision making, but does not rule out a role for tradeoffs between risk and utility or probability weighting.
Original languageEnglish
JournalJournal of Economic Psychology
Volume41
Pages (from-to)101-113
Number of pages13
ISSN0167-4870
DOIs
Publication statusPublished - Apr 2014

Cite this

Andersen, Steffen ; Harrison, Glenn W. ; Lau, Morten Igel ; Rutström, Elisabet E. . / Dual Criteria Decisions. In: Journal of Economic Psychology. 2014 ; Vol. 41. pp. 101-113.
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Dual Criteria Decisions. / Andersen, Steffen; Harrison, Glenn W. ; Lau, Morten Igel; Rutström, Elisabet E. .

In: Journal of Economic Psychology, Vol. 41, 04.2014, p. 101-113.

Research output: Contribution to journalJournal articleResearchpeer-review

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