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Ordinal Independence in Nonlinear Utility Theory

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  • Green, Jerry R
  • Jullien, Bruno

Abstract

Individual behavior under uncertainty is characterized using a new axiom, ordinal independence, which is a weakened form of the von Neumann-Morgenstern independence axiom. It states that if two distributions share a tail in common, then this tail can be modified without altering the individual's preference between these distributions. Preference is determined by the tail on which the distributions differ. This axiom implies an appealing and simple functional firm for a numerical representation of preferences. It generalizes the form of anticipated utility, and it explains some well-known forms of behavior, such as the Friedman-Savage paradox, that anticipated utility cannot. Copyright 1988 by Kluwer Academic Publishers

Suggested Citation

  • Green, Jerry R & Jullien, Bruno, 1988. "Ordinal Independence in Nonlinear Utility Theory," Journal of Risk and Uncertainty, Springer, vol. 1(4), pages 355-387, December.
  • Handle: RePEc:kap:jrisku:v:1:y:1988:i:4:p:355-87
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    Cited by:

    1. Laetitia Placido & Olivier L'Haridon, 2008. "An allais paradox for generalized expected utility theories?," Economics Bulletin, AccessEcon, vol. 4(19), pages 1-6.
    2. Bruno Jullien & Bernard Salanie, 2000. "Estimating Preferences under Risk: The Case of Racetrack Bettors," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 503-530, June.
    3. Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-1289, November.
    4. V. I. Yukalov & D. Sornette, 2012. "Quantum decision making by social agents," Papers 1202.4918, arXiv.org, revised Oct 2015.
    5. Camerer, Colin & Weber, Martin, 1992. "Recent Developments in Modeling Preferences: Uncertainty and Ambiguity," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 325-370, October.
    6. Alarie, Yves, 2000. "L’importance de la procédure dans les choix de loteries," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(3), pages 321-340, septembre.
    7. Rolf Aaberge & Magne Mogstad, 2009. "On the Measurement of Long-Term Income Inequality and Income Mobility," ICER Working Papers 09-2009, ICER - International Centre for Economic Research.
    8. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
    9. repec:kap:jrisku:v:54:y:2017:i:1:d:10.1007_s11166-017-9251-5 is not listed on IDEAS
    10. Soo Chew & Richard Ebstein & Songfa Zhong, 2012. "Ambiguity aversion and familiarity bias: Evidence from behavioral and gene association studies," Journal of Risk and Uncertainty, Springer, vol. 44(1), pages 1-18, February.
    11. Michael H. Birnbaum & Ulrich Schmidt & Miriam D. Schneider, 2017. "Testing independence conditions in the presence of errors and splitting effects," Journal of Risk and Uncertainty, Springer, vol. 54(1), pages 61-85, February.
    12. Zimper, Alexander, 2004. "On the Existence of Strategic Solutions for Games with Security- and Potential Level Players," Sonderforschungsbereich 504 Publications 04-04, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    13. Heilpern, S., 2003. "A rank-dependent generalization of zero utility principle," Insurance: Mathematics and Economics, Elsevier, vol. 33(1), pages 67-73, August.
    14. Schmidt, Ulrich & Birnbaum, Michael, 2014. "The Impact of Experience on Violations of Independence and Coalescing," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100463, Verein für Socialpolitik / German Economic Association.
    15. Bommier, Antoine, 2017. "A dual approach to ambiguity aversion," Journal of Mathematical Economics, Elsevier, vol. 71(C), pages 104-118.
    16. Alexander Zimper, 2007. "Strategic games with security and potential level players," Theory and Decision, Springer, vol. 63(1), pages 53-78, August.
    17. repec:ebl:ecbull:v:4:y:2008:i:19:p:1-6 is not listed on IDEAS
    18. Ulrich Schmidt, 2001. "Lottery Dependent Utility: a Reexamination," Theory and Decision, Springer, vol. 50(1), pages 35-58, February.
    19. Rolf Aaberge & A B Atkinson, 2013. "The median as watershed," Discussion Papers 749, Statistics Norway, Research Department.
    20. Grechuk, Bogdan & Zabarankin, Michael, 2014. "Risk averse decision making under catastrophic risk," European Journal of Operational Research, Elsevier, vol. 239(1), pages 166-176.
    21. Schmidt, Ulrich & Zank, Horst, 2001. "A new axiomatization of rank-dependent expected utility with tradeoff consistency for equally likely outcomes," Journal of Mathematical Economics, Elsevier, vol. 35(4), pages 483-491, July.

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