Economics Dictionary of ArgumentsHome
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| Decision-making process: A series of steps that people take to make decisions, such as identifying the decision, gathering information, and evaluating alternatives._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Economic Theories on Decision-making Processes - Dictionary of Arguments
Parisi I 502 Decision-making processes/Economic theories/Nitzan/Paroush: Suppose (…) that asymmetry exists between the two alternatives. Asymmetry may stem from three different sources. First, the priors of the two states of nature (the defendant being innocent and the defendant being guilty) may be different. For example, assume that most people are not criminals, so in order to convict a defendant the state “innocent” is considered as a status quo that has to be refuted and the state “guilty” is deemed as the alternative that has to be proved. Thus, a collective decision to convict is expected to be “beyond any doubt,” whereas collective acquittal may remain doubtful. Second, the net benefits of a correct decision under the two states of nature can be different. The two types of errors, acquittal of a guilty defendant and conviction of an innocent defendant, may have different costs. Third, an individual’s decisional competency may depend on the state of nature. In particular, the probability to decide correctly if the state is “innocent” can be different from the probability to decide correctly if the state is “guilty.” >Decision Rules. In any case, the decisional competency of an individual is not parameterized by a single probability of making a correct choice, but by two probabilities of deciding correctly in the two states of nature. Under asymmetry it is required that one of the two alternatives, say conviction, will be the collective choice only when it receives the support of a special majority with a quota larger than one-half. Thus, under asymmetry the decision rule should be a qualified majority rule (QMR). QMRs are discussed in several works in the political context of constitutions and fundamental laws as well as in relation to juries (see, e.g., Parisi I 503 Buchanan and Tullock, 1962(1); Rae, 1969)(2). Nitzan and Paroush (1984d)(3) were the first to derive the exact quota necessary for the optimal QMR. However, their quota is derived under the restrictive conditions of identical competencies that are invariant to the state of nature. The special case of identical competencies that depend on the state of nature was extensively analyzed by Sah and Stiglitz (1988)(4) and Sah (1990(5), 1991(6)). Allowing heterogeneous and state-dependent competencies, Ben-Yashar and Nitzan (1997)(7) specify the expression for both the weight that has to be assigned to each member of the team under the optimal rule as well as the desirable quota of votes necessary for the rejection of the status quo. The optimal rule in this more general case therefore becomes a weighted qualified majority rule, WQMR. The optimal weight is now proportional to the average of the logs of the odds of the two probabilities of making a correct choice and the optimal quota is a function of four parameters: the log of the two probabilities of making a correct decision, the log of the odd of the prior probability, and the log of the ratio of the two net benefits. >Condorcet Jury Theorem, >Jury Theorem, >Arrow’s Theorem. 1. Buchanan, J. M. and G. Tullock (1962). The Calculus of Consent: Logical Foundations of Constitutional Democracy. Ann Arbor, MI: University of Michigan Press. 2. Rae, D. W. (1969). “Decision-rules and individual values in constitutional choice.” American Political Science Review 63(1): 40–56. 3. Nitzan, S. and J. Paroush (1984d). “Are qualified majority rules special?” Public Choice 42(3): 257-272. 4. Sah, R. K. and J. Stiglitz (1988). “Committees, hierarchies and polyarchies.” Economic Journal 98(391): 451-470. 5. Sah, R. K. (1990). “An explicit closed-form formula for profit-maximizing k-out-of-n systems subject to two kinds of failures.” Microelectronics and Reliability 30(6): 1123-1130. 6. Sah, R. K. (1991). “Fallibility in human organizations and political systems.” Journal of Economic Perspectives 5(2): 67-88. Sah, R. K. and J. Stiglitz (1985). 7. Ben-Yashar, R. and S. Nitzan (1997). “The optimal decision rule for fixed size committees in dichotomous choice situations - The general result.” International Economic Review 38(1): 175-187. Shmuel Nitzan and Jacob Paroush. “Collective Decision-making and the Jury Theorems”. In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Economic Theories Parisi I Francesco Parisi (Ed) The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017 |
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