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On the Determination of Subjective Probability by Choices

  • Edi Karni

    ()

    (Department of Economics, Johns Hopkins University, Baltimore, Maryland 21218)

  • Philippe Mongin

    ()

    (THEMA, Centre National de la Recherche Scientifique and Université de Cergy-Pontoise, 33, Boulevard du Port, 95011 Cergy-Pontoise Cedex, France)

The paper explores the uniqueness properties of the subjective probabilities in two axiomatizations of state-dependent preferences. Karni, Schmeidler, and Vind's (KSV 1983) system depends on selecting an arbitrary auxiliary probability, and as such, does not guarantee the uniqueness of the derived subjective probability. However, an axiom system initially designed by Karni and Schmeidler (KS 1981) and further elaborated upon here does guarantee the desired uniqueness as well as a useful property of "stability" of the derived solution. When the preference relation displays state-independence, even the KS probabilities may not agree with those derived from the classic Anscombe-Aumann (AA 1963) theorem. However, we claim that, in this case, the KS rather than the AA probabilities are the appropriate representation of the agent's beliefs.

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File URL: http://dx.doi.org/10.1287/mnsc.46.2.233.11929
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Article provided by INFORMS in its journal Management Science.

Volume (Year): 46 (2000)
Issue (Month): 2 (February)
Pages: 233-248

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Handle: RePEc:inm:ormnsc:v:46:y:2000:i:2:p:233-248
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