Violations of dominance in decision-making

Abstract

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.

Keywords

• Decision theory
• Absolute dominance
• Statewise dominance
• First-order stochastic dominance
• Second-order stochastic dominance