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A Simple Behavioral Characterization of Subjective Expected Utility

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  • Pavlo Blavatskyy

Abstract

Subjective expected utility is the most widely used model to represent preferences under uncertainty (when objective probabilities of events may not be known). This paper presents a new behavioral characterization (preference axiomatization) of subjective expected utility. The latter is derived from a behavioral assumption of cardinal independence, also known as standard sequence invariance. This axiom requires that a standard sequence of outcomes (equally spaced in terms of utility) is independent of the conditional event. This axiom is a weaker version of the trade-off consistency condition of Wakker [Wakker PP (1984) Cardinal coordinate independence for expected utility. J. Math. Psych. 28:110–117]. The main representation theorem is derived both in the connected topology approach and the algebraic approach (when step-continuity is replaced with solvability and Archimedean axioms).

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  • Pavlo Blavatskyy, 2013. "A Simple Behavioral Characterization of Subjective Expected Utility," Operations Research, INFORMS, vol. 61(4), pages 932-940, August.
    • Handle: RePEc:inm:oropre:v:61:y:2013:i:4:p:932-940
    DOI: 10.1287/opre.2013.1179
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    References listed on IDEAS

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    Cited by:

    1. Dagsvik, John K., 2015. "Stochastic models for risky choices: A comparison of different axiomatizations," Journal of Mathematical Economics, Elsevier, vol. 60(C), pages 81-88.
    2. Blavatskyy, Pavlo, 2019. "Future plans and errors," Mathematical Social Sciences, Elsevier, vol. 102(C), pages 85-92.
    3. Blavatskyy, Pavlo, 2015. "Intertemporal choice with different short-term and long-term discount factors," Journal of Mathematical Economics, Elsevier, vol. 61(C), pages 139-143.
    4. Pavlo R. Blavatskyy, 2023. "Intertemporal choice with savoring of yesterday," Theory and Decision, Springer, vol. 94(3), pages 539-554, April.
    5. Blavatskyy, Pavlo R., 2017. "Probabilistic intertemporal choice," Journal of Mathematical Economics, Elsevier, vol. 73(C), pages 142-148.
    6. Blavatskyy, Pavlo, 2018. "Fechner’s strong utility model for choice among n>2 alternatives: Risky lotteries, Savage acts, and intertemporal payoffs," Journal of Mathematical Economics, Elsevier, vol. 79(C), pages 75-82.
    7. Blavatskyy, Pavlo, 2014. "Axiomatization of weighted (separable) utility," Journal of Mathematical Economics, Elsevier, vol. 54(C), pages 138-142.
    8. Pavlo Blavatskyy, 2020. "Expected discounted utility," Theory and Decision, Springer, vol. 88(2), pages 297-313, March.
    9. Blavatskyy, Pavlo, 2016. "Probability weighting and L-moments," European Journal of Operational Research, Elsevier, vol. 255(1), pages 103-109.

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