A Qualitative Model of Contingent Decision Making:

An Explanation Using the “Mental Ruler” Theory

Abstract

This article presents a new model of contingent decision making in which utility theories (including nonlinear utility theories such as the rank-dependent utility theory) are often violated. In this model, called “Mental Ruler” theory, it is assumed that people construct a mental ruler to evaluate options for judgment and decision. A mental ruler is assumed to have two endpoints(reference points) like an ordinal physical ruler. It is assumed that a mental ruler is constructed on the support for a subjectively framed situation which is dependent on the focused situation. Contrary to the most of the utility theories and prospect theory, evaluation function is inverse S-shaped function, which is concave below and convex above a certain point between the endpoints of the support for the mental ruler. Firstly, In this article, a critique of the previous theories is presented, and secondly, the qualitative model of the mental ruler is proposed. Thirdly, a set-theoretic foundation and the mathematical representation of the model is presented. Lastly, experimental findings on contingent decision making are interpreted by the mental ruler theory, and the theoretical implication of the model is discussed.