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Probabilistic Sophistication and Stochastic Monotonicity in the Savage Framework

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Author Info
Simon Grant (Rice University)
Hatice Ozsoy (Rice University)
Ben Polak () (Cowles Foundation, Yale University)

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Abstract

Machina & Schmeidler (1992) show that probabilistic sophistication can be obtained in a Savage setting without imposing expected utility by dropping Savage's axiom P2 (sure-thing principle) and strengthening his axiom P4 (weak comparative probability). Their stronger axiom, however, embodies a degree of separability analogous to P2. In this note, we obtain probabilistic sophistication using Savage's original axiom P4 and a weaker analog of Savage's P2.

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File URL: http://cowles.econ.yale.edu/P/cd/d16a/d1621.pdf
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Publisher Info
Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1621.

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Length: 15 pages
Date of creation: Aug 2007
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Handle: RePEc:cwl:cwldpp:1621

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Related research
Keywords: Subjective probability; Probabilistic sophistication; Stochastic monotonicity; Sure-thing principle; Cumulative dominance;

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Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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  1. Machina, Mark J & Schmeidler, David, 1992. "A More Robust Definition of Subjective Probability," Econometrica, Econometric Society, vol. 60(4), pages 745-80, July. [Downloadable!] (restricted)
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  2. Sarin, Rakesh & Wakker, Peter P., 2000. "Cumulative dominance and probabilistic sophistication," Mathematical Social Sciences, Elsevier, vol. 40(2), pages 191-196, September. [Downloadable!] (restricted)
  3. Grant, Simon & Polak, Ben, 2006. "Bayesian beliefs with stochastic monotonicity: An extension of Machina and Schmeidler," Journal of Economic Theory, Elsevier, vol. 130(1), pages 264-282, September. [Downloadable!] (restricted)
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