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Expected utility without utility

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Author Info

  • Erio Castagnoli

    (Bocconi University, Italy)

  • Marco LiCalzi

    (University of Venice, Italy)

Abstract

This paper advances an interpretation of Von Neumann–Morgenstern’s expected utility model for preferences over lotteries which does not require the notion of a cardinal utility over prizes and can be phrased entirely in the language of probability. According to it, the expected utility of a lottery can be read as the probability that this lottery outperforms another given independent lottery. The implications of this interpretation for some topics and models in decision theory are considered.

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File URL: http://128.118.178.162/eps/game/papers/0508/0508004.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Game Theory and Information with number 0508004.

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Length: 16 pages
Date of creation: 08 Aug 2005
Date of revision:
Handle: RePEc:wpa:wuwpga:0508004

Note: Type of Document - pdf; pages: 16
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Web page: http://128.118.178.162

Related research

Keywords: expected utility; cardinal utility; benchmark; risk attitude; stochastic dominance;

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References

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  1. Arrow, Kenneth J, 1974. "The Use of Unbounded Utility Functions in Expected-Utility Maximization: Response," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 88(1), pages 136-38, February.
  2. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, Econometric Society, vol. 47(2), pages 263-91, March.
  3. Grandmont, Jean-Michel, 1972. "Continuity properties of a von Neumann-Morgenstern utility," Journal of Economic Theory, Elsevier, vol. 4(1), pages 45-57, February.
  4. Robert F. Bordley & Gordon Hazen, 1992. "Nonlinear Utility Models Arising from Unmodelled Small World Intercorrelations," Management Science, INFORMS, vol. 38(7), pages 1010-1017, July.
  5. Foldes, Lucien, 1972. "Expected Utility and Continuity," Review of Economic Studies, Wiley Blackwell, vol. 39(4), pages 407-21, October.
  6. Machina, Mark J, 1982. ""Expected Utility" Analysis without the Independence Axiom," Econometrica, Econometric Society, Econometric Society, vol. 50(2), pages 277-323, March.
  7. Bordley, Robert F, 1992. " An Intransitive Expectations-Based Bayesian Variant of Prospect Theory," Journal of Risk and Uncertainty, Springer, vol. 5(2), pages 127-44, May.
  8. Viscusi, W Kip, 1989. " Prospective Reference Theory: Toward an Explanation of the Paradoxes," Journal of Risk and Uncertainty, Springer, vol. 2(3), pages 235-63, September.
  9. Robson, Arthur J, 1992. "Status, the Distribution of Wealth, Private and Social Attitudes to Risk," Econometrica, Econometric Society, Econometric Society, vol. 60(4), pages 837-57, July.
  10. Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 60, pages 151.
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Citations

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Cited by:
  1. Bordley, Robert F. & Pollock, Stephen M., 2012. "Assigning resources and targets to an organization’s activities," European Journal of Operational Research, Elsevier, vol. 220(3), pages 752-761.
  2. Castagnoli, Erio & LiCalzi, Marco, 2006. "Benchmarking real-valued acts," Games and Economic Behavior, Elsevier, vol. 57(2), pages 236-253, November.
  3. Abbas, 2004. "Utility Probability Duality," General Economics and Teaching, EconWPA 0403001, EconWPA.
  4. Ali Abbas, 2004. "Maximum Entropy Utility," Game Theory and Information, EconWPA 0403002, EconWPA.
  5. Sergiy Gerasymchuk, 2007. "Mean-Variance Portfolio Selection with Reference Dependent Preferences," Working Papers 150, Department of Applied Mathematics, Università Ca' Foscari Venezia.
  6. Marco LiCalzi & Annamaria Sorato, 2003. "The Pearson system of utility functions," Game Theory and Information, EconWPA 0311002, EconWPA.
  7. Marco LiCalzi, 2005. "A language for the construction of preferences under uncertainty," Game Theory and Information, EconWPA 0509002, EconWPA.
  8. DellaVigna, Stefano & LiCalzi, Marco, 2001. "Learning to make risk neutral choices in a symmetric world," Mathematical Social Sciences, Elsevier, vol. 41(1), pages 19-37, January.
  9. Masako Ikefuji & Roger Laeven & Jan Magnus & Chris Muris, 2013. "Pareto utility," Theory and Decision, Springer, vol. 75(1), pages 43-57, July.

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