TY  - JOUR
AU  - Manski,Charles F.
TI  - Partial Prescriptions For Decisions With Partial Knowledge
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14396
PY  - 2008
Y2  - October 2008
UR  - http://www.nber.org/papers/w14396
L1  - http://www.nber.org/papers/w14396.pdf
N1  - Author contact info:
Charles F. Manski
Department of Economics
Northwestern University
2001 Sheridan Road
Evanston, IL  60208
Tel: 847/491-8223
Fax: 847/491-7001
E-Mail: cfmanski@northwestern.edu
AB  - This paper concerns the prescriptive function of decision analysis.  I suppose that an agent must choose an action yielding welfare that varies with the state of nature.  The agent has a welfare function and beliefs, but he does not know the actual state of nature.  It is often argued that such an agent should adhere to consistency axioms which imply that behavior can be represented as maximization of expected utility.  However, our agent is not concerned the consistency of his behavior across hypothetical choice sets.  He only wants to make a reasonable choice from the choice set that he actually faces.  Hence, I reason that prescriptions for decision making should respect actuality.  That is, they should promote welfare maximization in the choice problem the agent actually faces.  I conclude that any decision rule respecting weak and stochastic dominance should be considered rational.  Expected utility maximization respects dominance, but it has no special status from the actualist perspective.  Moreover, the basic consistency axiom of transitivity has a clear normative foundation only when actions are ordered by dominance.
ER  -