Probabilistic subjective expected utility
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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