The normative foundation (axioms) of Bayesian belief updating has long been established in the literature of decision science. However, psychology and experiments suggest that while rational decision making is ideal, it is rarely achievable for ordinary people. Therefore, it is important to explore the foundations and consequences of rational decision making within the field of economics.
This thesis involves three papers on this. In the first paper, I explore the consequences of wishful thinking on mechanism design. It suggests that wishful thinking bias could be profit-generating for mechanism designers.
In the second paper, I investigate conservative updating and provide a foundation for it. The main behavioral axiom, ``conservative consistency," suggests that decision-makers may partially incorporate information, particularly when it requires them to revise their previous preferences (the preferences order according to their prior belief).
In the third paper, I reframe the model selection problem as a rational decision-making problem. The decision-maker is restricted to choosing an advisor to delegate their choices. I explore the conditions under which a rational decision-maker selects models (or advisors) according to Bayes factor criteria. / Doctor of Philosophy / Most of us do not always make decisions completely rational. This thesis digs into how irrational decision-making fits into economics, with three papers to break it down.
The first paper looks at wishful thinking and how it affects our decisions. It suggests that if we understand our biases, we can design better mechanism to generate profit.
The second paper talks about conservative updating, which is all about how we pick and choose what information matters, especially when it clashes with our existing belief.
Lastly, the third paper explores how we choose advisors to help us make decisions. It looks at when it is smart to pick based on Bayes factor criteria.
Through these papers, this thesis helps us understand how rational decision-making plays out in real-life economics.
| Identifer | oai:union.ndltd.org:VTETD/oai:vtechworks.lib.vt.edu:10919/119070 |
| Date | 23 May 2024 |
| Creators | Chan, Chao Hung |
| Contributors | Economics, Science, Sarangi, Sudipta, Tzavellas, Hector, Kovach, Matthew, Haller, Hans H. |
| Publisher | Virginia Tech |
| Source Sets | Virginia Tech Theses and Dissertation |
| Language | English |
| Detected Language | English |
| Type | Dissertation |
| Format | ETD, application/pdf |
| Rights | Creative Commons Attribution 4.0 International, http://creativecommons.org/licenses/by/4.0/ |
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