ABSTRACT: Bernoulli’s framework of expected utility serves as a model for various psychological processes, including motivation, moral sense, attitudes, and decision making. To account for evidence at variance with expected utility, we generalize the framework of fast and frugal heuristics from inferences to preferences. The priority heuristic predicts (i) Allais’ paradox, (ii) risk aversion for gains if probabilities are high, (iii) risk seeking for gains if probabilities are low (lottery tickets), (iv) risk aversion for losses if probabilities are low (buying insurance), (v) risk seeking for losses if probabilities are high, (vi) certainty effect, (vii) possibility effect, and (viii) intransitivities. We test how accurately the heuristic predicts people’s choices, compared to previously proposed heuristics and three modifications of expected utility theory: security-potential/aspiration theory, transfer-of-attention-exchange model, and cumulative prospect theory.
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This brings us to one of the most important component of the new social law and the oikodicy, a defining feature of homo economicus and his milieu, the market. Economic beings are reliable on account of their very limitations, they are social due to their lack of sociality, and it is only through their self-interested participation in trade that they can be brought to serve a purpose extrinsic to themselves. Above all, they best exercise control over themselves and others if they are left uncontrolled. There is nothing — and this will be one of the leitmotifs of the liberalism to come — more harmful than a government that wants to do good. On the contrary, what is called for here is a Mephistophelian agenda, one that takes its cue from a power “which would do evil constantly and constantly does good,” inadvertently producing what is best for all. Civil society, which constitutes itself as the milieu of homo economicus, is governed by the principle of nontransparency or inscrutability; there is no benevolent political actor, possessed of an all-encompassing overview and piercing insight, who might be willing and able to do what is good for everyone.
Joseph Vogl, The Specter of Capital (Stanford: Stanford University Press, 2015), p.24.
Since the seventeenth century — to put it briefly — the discourses of natural rights and moral philosophy have provided some of the building blocks for an all-purpose definition of homo economicus. These discourses connect assumptions about the state of the world with presuppositions about human nature, and they have led to a long-lasting, radical change in the moral household and in the economy of human interrelations. This means, first, that modern homo economicus appears on the scene not merely as a rational subject but also as a passionate one, whereby these passions are regulated via a mechanism of interests. Second, he acts as a blind subject with limited knowledge. It is precisely through this blindness that he produces — unintentionally and unconsciously — harmonious social relations. For this reason, he follows a specific path in life. Homo economicus acquires wisdom through his ignorance and gets ahead in life thanks to his limited awareness and narrow horizons. Incidentally, a similar contradiction can be found in the plot structure of the German Bildungsroman: Wilhelm Meister, too, arrives at his rightful place in life precisely through his limited knowledge and the unintended consequences of his actions, as if steered there by an invisible, “higher hand” […] Third, homo economicus is an enemy of the state in a special sense. As far as he is concerned, the implementation of a good system — involving laws, institutions, administration, and so on — conflicts with the good implementation of systematicity itself. […] And fourth, this hostility to government interference does not detract, as might be expected, from homo economicus developing into an eminently governable character type.
Joseph Vogl, The Specter of Capitalism (Stanford: Stanford University Press, 2015), p. 27.