Focus theory of choice and its application to resolving the St. Petersburg, Allais, and Ellsberg paradoxes and other anomalies

Peijun Guo

European Journal of Operational Research, 2019, vol. 276, issue 3, 1034-1043

Abstract: We present a decision theory which models and axiomatizes a decision-making procedure. This procedure involves two steps: in the first step, for each action, some specific event which can bring about a relatively high payoff with a relatively high probability or a relatively low payoff with a relatively high probability is selected as the positive or negative focus, respectively; in the second step, based on the foci of all actions, a decision maker chooses a most-preferred action. Our model handles decision making with risk or under ambiguity or under ignorance within a unified framework. Our model resolves several anomalies, including the St. Petersburg, Allais, and Ellsberg paradoxes, and violations of stochastic dominance.

Keywords: Decision support systems; Behavioral model; The St. Petersburg paradox; The Allais paradox; The Ellsberg paradox (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:276:y:2019:i:3:p:1034-1043

DOI: 10.1016/j.ejor.2019.01.019

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