A new decision theory is proposed to explain the violations of expected utility theory through the role of random errors. The main premise of the new theory is that individuals make random errors when they compute the expected utility of a risky lottery. When being distorted by error, the expected utility of a lottery should neither exceed the utility of the highest possible outcome nor fall be...

This paper develops techniques for comparative statics in the consumer problem under uncertainty that involve order-based rather than topological assumptions on utility functions and choice sets. We allow for imperfect substitutability and for a broad set of lottery choices. Building on the value lattice approach to the consumer problem developed by Antoniadou (1996), we introduce a partial ord...

In economies with indivisible commodities, consumers tend to prefer lotteries in commodities. A potential mechanism for satisying these preferences is unrestricted purchasing and selling of lotteries in decentralized markets, as suggested in Prescott and Townsend [-Int. Econ. Rev. 25, 1-20]. However, this paper shows in several examples that such lottery equilibria do not always exist for econo...

Students were given lottery tickets and then were asked to exchange their ticket for another one, plus a small monetary incentive. Less than 50% agreed. In contrast, when given pens, and the same exchange offer, over 90% agreed. Experimental control rules out that the reluctance to exchange lottery tickets results (a) from overestimation of the winning probability of one's own ticket; (b) from ...

I. THE BEHAVIORAL ECONOMICS OF INTELLECTUAL PROPERTY LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 R A. Classical Economics and Intellectual Property . . . . . . . 5 R B. Behavioral Challenges to the Rational Choice Model: The Endowment Effect . . . . . . . . . . . . . . . . . . . . . 6 R 1. The Strength of the Endowment Effect . ....

Archival studies of within-family prosocial behavior (Judge & Hrdy, 1992; Smith, Kish, & Crawford, 1987) have shown that inheritance patterns support Hamilton s (1964) theory of inclusive fitness, such that people will more of their estates to relatives of closer genetic relatedness. In a survey-based simulation of these studies, students allocated one of three lotteries to their blood relative...