Violations of dominance in decision-making

• Main Authors: Thomas Kourouxous, Thomas Bauer
• Format: Article
• Language: English
• Published: Springer 2019-03-01
• Series: Business Research
• Subjects: Decision theory; Absolute dominance; Statewise dominance; First-order stochastic dominance; Second-order stochastic dominance
• Online Access: http://link.springer.com/article/10.1007/s40685-019-0093-7

Abstract A key premise underlying most of the economic literature is that rational decision-makers will choose dominant strategies over dominated alternatives. However, prior literature in various disciplines including business, psychology, and economics document a series of phenomena associated with violations of the dominance principle in decision-making. In this comprehensive review, we discuss conditions under which people violate the dominance principle in decision-making. When presenting violations of dominance in empirical and experimental studies, we differentiate between absolute, statewise, and stochastic (first- and second-order) violations of dominance. Furthermore, we categorize the literature by the leading causes for dominance violations: framing, reference points, certainty effects, bounded rationality, and emotional responses.