Information theory and observational limitations in decision making

Wolpert, David and Leslie, David S. (2012) Information theory and observational limitations in decision making. BE Journal of Theoretical Economics, 12 (1).

Full text not available from this repository.

Abstract

We introduce a general framework for formalizing and analyzing the problem faced by a Decision Maker (DM) working under information-theoretic constraints on their observational ability. The random utility model and the "hedonic utility" model of Netzer and Robson (NR) are special cases of this framework. We begin by applying information theory to our framework to derive general results concerning the expected regret of DM under observational limitations. We then turn our attention to the effects of observational limitations on choice behavior (rather than their effects on the regret values induced by that behavior). We focus on the special case of NR. First we derive two postulates assumed by NR. We then provide a simple derivation of the result of NR that a particular hedonic utility function satisfies certain optimality principles. Next we extend NR to allow a countable, rather than uncountable, set of states of the world. In particular we show how to use dynamic programming to solve for the optimal preference order of DM in this extension. We also extend NR by considering the case where more than two options are presented to DM. In particular, we show that the results of NR change in such a case, implying that the number of options being presented is a crucial aspect of choice problems

Item Type:
Journal Article
Journal or Publication Title:
BE Journal of Theoretical Economics
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000
Subjects:
ID Code:
70732
Deposited By:
Deposited On:
11 Sep 2014 11:08
Refereed?:
Yes
Published?:
Published
Last Modified:
01 Jan 2020 08:58