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Probabilistic subjective expected utility

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  • Blavatskyy, Pavlo R.

Abstract

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.

Suggested Citation

  • Blavatskyy, Pavlo R., 2012. "Probabilistic subjective expected utility," Journal of Mathematical Economics, Elsevier, vol. 48(1), pages 47-50.
    • Handle: RePEc:eee:mateco:v:48:y:2012:i:1:p:47-50
    DOI: 10.1016/j.jmateco.2011.11.004
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    References listed on IDEAS

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    1. Fishburn, Peter C, 1978. "A Probabilistic Expected Utility Theory of Risky Binary Choices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(3), pages 633-646, October.
    2. Blavatskyy, Pavlo R., 2009. "How to extend a model of probabilistic choice from binary choices to choices among more than two alternatives," Economics Letters, Elsevier, vol. 105(3), pages 330-332, December.
    3. Pavlo R. Blavatskyy, 2011. "A Model of Probabilistic Choice Satisfying First-Order Stochastic Dominance," Management Science, INFORMS, vol. 57(3), pages 542-548, March.
    4. Paolo Ghirardato & Fabio Maccheroni & Massimo Marinacci & Marciano Siniscalchi, 2003. "A Subjective Spin on Roulette Wheels," Econometrica, Econometric Society, vol. 71(6), pages 1897-1908, November.
    5. Wilcox, Nathaniel T., 2011. "'Stochastically more risk averse:' A contextual theory of stochastic discrete choice under risk," Journal of Econometrics, Elsevier, vol. 162(1), pages 89-104, May.
    6. John D. Hey & Chris Orme, 2018. "Investigating Generalizations Of Expected Utility Theory Using Experimental Data," World Scientific Book Chapters, in: Experiments in Economics Decision Making and Markets, chapter 3, pages 63-98, World Scientific Publishing Co. Pte. Ltd..
    7. Loomes, Graham & Sugden, Robert, 1995. "Incorporating a stochastic element into decision theories," European Economic Review, Elsevier, vol. 39(3-4), pages 641-648, April.
    8. Huber, Joel & Puto, Christopher, 1983. "Market Boundaries and Product Choice: Illustrating Attraction and Substitution Effects," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 10(1), pages 31-44, June.
    9. Pavlo R. Blavatskyy, 2009. "How to Extend a Model of Probabilistic Choice from Binary Choices to Choices among More Than Two Alternatives," IEW - Working Papers 426, Institute for Empirical Research in Economics - University of Zurich.
    10. Huber, Joel & Payne, John W & Puto, Christopher, 1982. "Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 9(1), pages 90-98, June.
    11. Kaisa Herne, 1999. "The Effects of Decoy Gambles on Individual Choice," Experimental Economics, Springer;Economic Science Association, vol. 2(1), pages 31-40, August.
    12. Amos Tversky & Itamar Simonson, 1993. "Context-Dependent Preferences," Management Science, INFORMS, vol. 39(10), pages 1179-1189, October.
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    Cited by:

    1. Matthew Ryan, 2015. "Binary Choice Probabilities on Mixture Sets," Working Papers 2015-01, Auckland University of Technology, Department of Economics.
    2. 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.
    3. Matthew Ryan, 2018. "Uncertainty and binary stochastic choice," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(3), pages 629-662, May.
    4. Blavatskyy, Pavlo, 2019. "Future plans and errors," Mathematical Social Sciences, Elsevier, vol. 102(C), pages 85-92.
    5. Blavatskyy, Pavlo, 2015. "Behavior in the centipede game: A decision-theoretical perspective," Economics Letters, Elsevier, vol. 133(C), pages 117-122.
    6. Blavatskyy, Pavlo R., 2017. "Probabilistic intertemporal choice," Journal of Mathematical Economics, Elsevier, vol. 73(C), pages 142-148.
    7. Pavlo Blavatskyy, 2018. "A Refinement of Logit Quantal Response Equilibrium," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 20(02), pages 1-14, June.

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