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This chapter reviews models of decision-making and choice under conditions of certainty. It allows readers to position the contribution of the other chapters in this book in the historical development of the topic area.

Bounded rationality is defined in terms of a strategy to simplify the decision-making process. Based on this definition, different models are reviewed. These models have assumed that individuals simplify the decision-making process by considering a subset of attributes, and/or a subset of choice alternatives and/or by disregarding small differences between attribute differences.

A body of empirical evidence has accumulated showing that under some circumstances the principle of bounded rationality better explains observed choices than the principle of utility maximization. Differences in predictive performance with utility-maximizing models are however small.

The chapter provides a detailed account of the different models, based on the principle of bounded rationality, that have been suggested over the years in travel behaviour analysis. The potential relevance of these models is articulated, model specifications are discussed and a selection of empirical evidence is presented. Aspects of an agenda of future research are identified.

Marketers often assume that functional, hedonic and socially conspicuous utilities in choosing a brand differ for men and women, thus different marketing strategies are required for each gender. To date, most of the research studies have used self-reported measures when shopping in general or in regard to a single product. The purpose of this research is to examine this question using two different contexts of brand choice: single choice evaluation (SCE) and brand selection context (BSC). This assessment will clarify whether male and female utilities when choosing a brand are indeed inherent and consistent.

Data were collected using surveys in three studies (N = 923). Conjoint analysis and ICLV (integrated choice and latent variables) models were examined.

BSC analysis that more closely mimics real-life contexts revealed that the consideration of these utilities is generally similar for men and women, while the SCE analysis showed significant gender differences.

In the context of choosing between brands, stereotypical gender targeting may be ineffective and might not be the best allocation of resources for marketers.

Gender stereotypes in advertising seem to reconstruct differences that are not significant in a realistic brand selection context.

The context of choice was found to be a condition boundary for gender differences in brand choice considerations. Gender differences are not evolutionary or inherent.

Past marketing research has found that hedonic utility is more important for Western cultures, whereas social utility is more important for Eastern cultures, suggesting differential positioning in each culture. However, the research has so far focused on a single choice context of one brand. This paper aims to examine cultural differences in utility importance using two brand choice contexts: single choice and brand selection.

Four studies (n = 1268) were conducted. Study 1 focused on a single choice context by asking directly about utility importance when choosing a cellphone. Study 2 focused on a brand selection context using conjoint analysis for the same cellphone category used in Study 1. To validate the results of Studies 1 and 2 with the categories of perfume, sports shoes and computers, Study 3 analyzed single and selection contexts using latent regression methods. Finally, Study 4 explored the role of cognitive load in explaining the differences between the two choice contexts using the laptop category.

The analyses of the brand selection context, which simulates real-life choice, revealed that the importance ascribed to utilities was not idiosyncratic for each culture. In contrast, single-choice contexts demonstrated stereotypical cultural differences.

Positioning a specific utility message to fit the culture stereotype might not be necessary, as it does not always affect brand choice in a competitive environment.

We review the experimental evidence on risk aversion in controlled laboratory settings. We review the strengths and weaknesses of alternative elicitation procedures, the strengths and weaknesses of alternative estimation procedures, and finally the effect of controlling for risk attitudes on inferences in experiments.

Paradox has been an instrument to challenge the traditional expected utility theory. Paradox arises from the inconsistency between the empirical or experimental results and the theoretical deductions. In the expected utility theory field, there are many paradoxes or effects showing behaviors that are contradictory to the “theoretical” ones. Many studies questioned the validity of the expected utility theory by means of these paradoxes; while many others disqualified the expected utility theory as a descriptive model for human decision making behaviors. Among these paradoxes or effects, the Allais Paradox raised by Allais in 1953 is the most famous one.

The assumption of free will in contemporary economics is an important starting point for socio‐economic analysis in contrast to methodologies which assume that human action is pre‐determined by forces beyond individual control. However, contemporary economic theory is devoid of choice in critical domains with important implication for economic analyses and public policy, given the ancillary assumption of the importance of market forces in determining choice behavior. The purpose of this paper is to argue that freedom of choice exists given traditional constraints such as relative prices and income.

This is a theoretical paper examining the assumption of free will in choice behaviour in economic theory. It makes reference to literature in economics and philosophy that shed light on this critical working assumption in economics.

Conventional analysis pays little heed to non economic constraints on human action that affect and delimit but do not preclude free choice or free will. Of vital importance to free will in choice behavior are institutions which delimit the extent of coercion in the decision‐making process.

An important implication for research is the determination of the necessary and sufficient conditions for the existence of free will in choice behaviour. Given the existence of free will and free choice, individuals are morally responsible for their choices. It is therefore important to determine the extent which free will exists and that which constrains free will in choice behaviour.

This paper challenges the extremes of the free will debate in economics and suggests the boundaries within which free will exists in economic behaviour. It also suggests the welfare implications of limitations on free will where no negative externalities exist.

The U.S. 2009 Tobacco Control Act opened the door for new antismoking policies by giving the Food and Drug Administration broad regulatory authority over the tobacco industry. We develop a behavioral welfare economics approach to conduct cost-benefit analysis of FDA tobacco regulations. We use a simple two-period model to develop expressions for the impact of tobacco control policies on social welfare. Our model includes: nudge and paternalistic regulations; an excise tax on cigarettes; internalities created by period 1 versus period 2 consumption; and externalities from cigarette consumption. Our analytical expressions show that in the presence of uncorrected internalities and externalities, a nudge or a tax to reduce cigarette consumption improves social welfare. In sharp contrast, a paternalistic regulation might either improve or worsen social welfare. Another important result is that the social welfare gains from new policies do not only depend on the size of the internalities and externalities, but also depend on the extent to which current policies already correct the problems. We link our analytical expressions to the graphical approach used in most previous studies and discuss the information needed to complete cost-benefit analysis of tobacco regulations. We use our model as a framework to reexamine the evidence base for strong conclusions about the size of the internalities, which is the key information needed.

This chapter conducts a systematic comparison of behavioral economics’s challenges to the standard accounts of economic behaviors within three dimensions: under risk, over time, and regarding other people. A new perspective on two underlying methodological issues, i.e., inter-disciplinarity and the positive/normative distinction, is proposed by following the entanglement thesis of Hilary Putnam, Vivian Walsh, and Amartya Sen. This thesis holds that facts, values, and conventions have inter-dependent meanings in science which can be understood by scrutinizing formal and ordinary language uses. The goal is to provide a broad and self-contained picture of how behavioral economics is changing the mainstream of economics.