Choice under Uncertainty and Bounded Rationality
AbstractThis paper develops a theory for probabilistic models for risky choices that can be viewed as an extension of the expected utility theory to account for bounded rationality. One probabilistic version of the Archimedean Axiom and two versions of the Independence Axiom are proposed. In addition, additional axioms are proposed of which one is Luce’s Independence from Irrelevant Alternatives. It is demonstrated that different combinations of the axioms yield different characterizations of the probabilities for choosing the respective risky prospects
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Bibliographic InfoPaper provided by Research Department of Statistics Norway in its series Discussion Papers with number 409.
Date of creation: Mar 2005
Date of revision:
Random tastes; bounded rationality; independence from irrelevant alternatives; choice among lotteries; probabilistic choice for uncertain outcomes.;
Find related papers by JEL classification:
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-14 (All new papers)
- NEP-CBE-2005-06-14 (Cognitive & Behavioural Economics)
- NEP-DCM-2005-06-14 (Discrete Choice Models)
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