Theory and Decision

, Volume 77, Issue 2, pp 183–196 | Cite as

Axiomatizing bounded rationality: the priority heuristic

  • Mareile Drechsler
  • Konstantinos Katsikopoulos
  • Gerd Gigerenzer
Article

Abstract

This paper presents an axiomatic framework for the priority heuristic, a model of bounded rationality in Selten’s (in: Gigerenzer and Selten (eds.) Bounded rationality: the adaptive toolbox, 2001) spirit of using empirical evidence on heuristics. The priority heuristic predicts actual human choices between risky gambles well. It implies violations of expected utility theory such as common consequence effects, common ratio effects, the fourfold pattern of risk taking and the reflection effect. We present an axiomatization of a parameterized version of the heuristic which generalizes the heuristic in order to account for individual differences and inconsistencies. The axiomatization uses semiorders (Luce, Econometrica 24:178–191, 1956), which have an intransitive indifference part and a transitive strict preference component. The axiomatization suggests new testable predictions of the priority heuristic and makes it easier for theorists to study the relation between heuristics and other axiomatic theories such as cumulative prospect theory.

Keywords

Bounded rationality Axiomatization Priority heuristic EUT EVT 

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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • Mareile Drechsler
    • 1
  • Konstantinos Katsikopoulos
    • 2
  • Gerd Gigerenzer
    • 2
  1. 1.Department of Philosophy, Logic and Scientific MethodLondon School of Economics and Political ScienceLondonUK
  2. 2.Center for Adaptive Behavior and CognitionMax Planck Institute for Human DevelopmentBerlinGermany

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