| Abstract: |
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. |