Decisions in Single-Agent Environments
We now turn to explicitly assessing economic rationality. Throughout this paper we leverage the von Neumann–Morgenstern expected utility model (vNM), which provides a comprehensive framework establishing ideal norms for how a decision-maker should act. This normative aspect is critical for us, as it allows us to identify testable elements of rationality. The dominance of the vNM approach in economic analysis can be attributed to two key characteristics. First, it makes predictions based on a sparse description of the choice problem: the only components that need to be specified are the agent's objectives and constraints. Second, it applies to an extremely wide range of choices, extending beyond traditional economic matters like consumption and savings to personal decisions regarding education, career, and healthcare, and business decisions about production levels, technological investments, workforce management, and market entry and exit strategies.
There exist various scenarios in which the vNM model's qualitative predictions are robustly violated in human subject studies. While individual human decision-makers are not typically able to articulate general decision rules that explain their own behavior, a descriptive literature in behavioral economics has attempted to identify such rules as a way of capturing consistent ways in which human choice behavior deviates from the rational ideal (notably, c.f. Savage, 1954; Kahneman and Tversky, 1979; for a recent survey, see Erev et al., 2017). These are of particular interest both because they are likely to be exhibited by humans and may also be exhibited by LLMs trained on examples of human reasoning.
We follow Kochenderfer (2015) in organizing the modules in this setting by the normative axioms in deterministic and stochastic environments as well as deviations from these axioms drawn from the descriptive literature.
Modules
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2.1Axioms of Utility in Deterministic Environments
The vNM utility theory rests on a set of axioms, which are easy to interpret as elements of rationality.
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2.2Avoidance of Cognitive Biases in Deterministic Environments
A wide range of cognitive biases have been identified by the descriptive economic literature.
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2.3Axioms of Utility in Stochastic Environments
We now elaborate our economic environment to include a stochastic relationship between an agent's choices and the resulting economic outcomes.
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2.4Risk Neutral Expected Utility Computations
This module includes elements evaluating adherence to a linear utility function when computing expected utilities, delving into the behavioral patterns exhibited by individuals and institutions in their approach to risk.
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2.5Avoidance of Cognitive Biases in Stochastic Environments
Here, we include elements testing the agent's ability to avoid making contradictory or inconsistent behaviors, emphasizing how framing effects play in shaping risk-taking attitudes.