The Knowledge Ahead Approach to Risk

1. Front Matter

   Pages i-xvi

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2. Introduction

   1. Introduction

      Pages 1-4

3. Theory and Methodology

   1. Front Matter

      Pages 5-5

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   2. A Serious Specific Scenario for a Serious Risky Choice Theory

      Pages 7-10

   3. What Expected Utility Theory Really Is: What Its Notion of Risk Aversion Excludes

      Pages 11-15

   4. Primary and Secondary Satisfactions

      Pages 17-23

   5. The von Neumann-Morgenstern Contradiction When Including Secondary Satisfactions Solved with Stages of Knowledge

      Pages 25-34

   6. Material Secondary Satisfactions and Planning

      Pages 35-40

   7. Misconceptions About Secondary Satisfactions

      Pages 41-48

   8. Biases in Experimental Set-ups That Ignore Secondary Satisfactions

      Pages 49-52

   9. SKAT, The Stages of Knowledge Ahead Theory

      Pages 53-58

   10. Self Reports Versus Scientists’ Own Introspection and Related Reliability Issues

       Pages 59-64

4. Experiments

   1. Front Matter

      Pages 65-65

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   2. Participants and Their Choices

      Pages 67-75

   3. Willingness to Pay Compared with Choices in a Dictated Choice Set

      Pages 77-96

   4. The Role of Secondary Satisfactions

      Pages 97-104

   5. Algorithms Versus Global Maximising Procedures

      Pages 105-117

   6. Insurance Provision by Governments and Firms

      Pages 119-123

   7. Summary and Directions for Further Research

      Pages 125-126

5. Back Matter

   Pages 127-232

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The joint work of Robin Pope, Johannes Leitner and Ulrike Leopold- Wildburger presented in this little book makes a strong point for a new approach to decision making under risk. It emphasizes aspects of risk preferences largely neglected in the theoretical and experimental lite- ture. Before the outcome of a risky decision is known a decision maker may feel worries or thrills about what will happen at the end. It is c- vincingly argued that the anticipation of such ”secondary satisfactions” is, and should be, an important in?uence on the decision. The questi- naire data and the experiments support this view. The answers of participants in the questionnaires about the reasons for their decision are an important basis for the evaluation of the - periment. The evaluation of these questionnaires has led to impressive ?ndings. Like other commonly used research techniques, the analysis of introspective information in questionnaires is not absolutely reliable. Nevertheless it is an extremely valuable source of insight into moti- tional forces, insu?ciently exploited in economics. It is not my task to give a preview of the book, but I would like to encourage the reader to discover the remarkable results of an unusual theoretical and experimental approach to decision making under risk. K¨ onigswinter, Germany, August 2006 Reinhard Selten Preface In this book we break new ground on why and how people decide on - surancecontracts,ando?erafewinsightsonhowthecontextofterrorism may a?ect such demand. Our ?ndings are suggestive also for decisions under risk in other situations.

• Expected Utility
• Experimental Economics
• Insurance
• Risk
• Willingness to Pay
• algorithms
• decision theory

From the reviews:

"While most approaches to risk ignore the time dimension, Pope, Leitner, and Leopold-Wildburger distinguish between primary and secondary satisfactions. … The book may be suitable for senior undergraduate and graduate students, in addition to practitioners and researchers … . It can serve to initiate researchers and students into experiments and how experimental results can serve to test and develop theories." (Kjell Hausken, Theory and Decision, Vol. 62, 2007)

• Experimental Economics Laboratory, Bonn University, Bonn, Germany

  Robin Pope

• Department of Statistics and Operations Research, University of Graz, Graz, Austria

  Johannes Leitner, Ulrike Leopold-Wildburger

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