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Probabilistic subjective expected utility

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  • Blavatskyy, Pavlo R.
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    Abstract

    This paper develops the first model of probabilistic choice under subjective uncertainty (when probabilities of events are not objectively known). The model is characterized by seven standard axioms (probabilistic completeness, weak stochastic transitivity, nontriviality, event-wise dominance, probabilistic continuity, existence of an essential event, and probabilistic independence) as well as one new axiom. The model has an intuitive econometric interpretation as a Fechner model of (relative) random errors. The baseline model is extended from binary choice to decisions among m>2 alternatives using a new method, which is also applicable to other models of binary choice.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Mathematical Economics.

    Volume (Year): 48 (2012)
    Issue (Month): 1 ()
    Pages: 47-50

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    Handle: RePEc:eee:mateco:v:48:y:2012:i:1:p:47-50

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    Web page: http://www.elsevier.com/locate/jmateco

    Related research

    Keywords: Probabilistic choice; Subjective uncertainty; Subjective expected utility;

    References

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    1. Wilcox, Nathaniel, 2007. "Stochastically more risk averse: A contextual theory of stochastic discrete choice under risk," MPRA Paper 11851, University Library of Munich, Germany.
    2. Paolo Ghirardato & Fabio Maccheroni & Massimo Marinacci & Marciano Siniscalchi, 2001. "A subjective spin on roulette wheels," ICER Working Papers - Applied Mathematics Series, ICER - International Centre for Economic Research 17-2001, ICER - International Centre for Economic Research, revised Aug 2001.
    3. Blavatskyy, Pavlo R., 2009. "How to extend a model of probabilistic choice from binary choices to choices among more than two alternatives," Economics Letters, Elsevier, Elsevier, vol. 105(3), pages 330-332, December.
    4. Huber, Joel & Payne, John W & Puto, Christopher, 1982. " Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 9(1), pages 90-98, June.
    5. Hey, John D & Orme, Chris, 1994. "Investigating Generalizations of Expected Utility Theory Using Experimental Data," Econometrica, Econometric Society, Econometric Society, vol. 62(6), pages 1291-1326, November.
    6. Kaisa Herne, 1999. "The Effects of Decoy Gambles on Individual Choice," Experimental Economics, Springer, Springer, vol. 2(1), pages 31-40, August.
    7. Huber, Joel & Puto, Christopher, 1983. " Market Boundaries and Product Choice: Illustrating Attraction and Substitution Effects," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 10(1), pages 31-44, June.
    8. Pavlo R. Blavatskyy, 2009. "How to Extend a Model of Probabilistic Choice from Binary Choices to Choices among More Than Two Alternatives," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 426, Institute for Empirical Research in Economics - University of Zurich.
    9. Fishburn, Peter C, 1978. "A Probabilistic Expected Utility Theory of Risky Binary Choices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(3), pages 633-46, October.
    10. Pavlo R. Blavatskyy, 2011. "A Model of Probabilistic Choice Satisfying First-Order Stochastic Dominance," Management Science, INFORMS, INFORMS, vol. 57(3), pages 542-548, March.
    11. Loomes, Graham & Sugden, Robert, 1995. "Incorporating a stochastic element into decision theories," European Economic Review, Elsevier, Elsevier, vol. 39(3-4), pages 641-648, April.
    12. Amos Tversky & Itamar Simonson, 1993. "Context-Dependent Preferences," Management Science, INFORMS, INFORMS, vol. 39(10), pages 1179-1189, October.
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