IDEAS home Printed from https://ideas.repec.org/p/cla/levarc/7599.html
   My bibliography  Save this paper

Two Stage Lotteries Without the Reduction Axiom

Author

Listed:
  • Uzi Segal

Abstract

Preference relations over two-stage lotteries are analyzed. Empirical evidence indicates that decisionmakers do not always behave in accordance with the reduction of compound lotteries axiom, but they seem to satisfy a compound independence axiom. Although the reduction and the compound independence axioms, together with continuity, imply expected utility theory, each of them by itself is compatible with all possible preference relations over simple lotteries. Using these axioms, the author analyzes three different versions of expected utility for two-stage lotteries. The author suggests several different compound dominance axioms as possible replacements of the reduction axiom, which are strictly weaker than the reduction of compound lotteries axiom. Copyright 1990 by The Econometric Society.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Uzi Segal, 2000. "Two Stage Lotteries Without the Reduction Axiom," Levine's Working Paper Archive 7599, David K. Levine.
  • Handle: RePEc:cla:levarc:7599
    as

    Download full text from publisher

    File URL: http://www.dklevine.com/archive/refs47599.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kreps, David M & Porteus, Evan L, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Econometrica, Econometric Society, vol. 46(1), pages 185-200, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rhys Bidder & Ian Dew-Becker, 2016. "Long-Run Risk Is the Worst-Case Scenario," American Economic Review, American Economic Association, vol. 106(9), pages 2494-2527, September.
    2. Hansen, Lars Peter, 2013. "Uncertainty Outside and Inside Economic Models," Nobel Prize in Economics documents 2013-7, Nobel Prize Committee.
    3. Benigno, Pierpaolo & Paciello, Luigi, 2014. "Monetary policy, doubts and asset prices," Journal of Monetary Economics, Elsevier, vol. 64(C), pages 85-98.
    4. Stefano d¡¦Addona, 2018. "Rational Ignorance in Long-run Risk Models," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 17(1), pages 43-54, June.
    5. Bommier, Antoine & Lanz, Bruno & Zuber, Stéphane, 2015. "Models-as-usual for unusual risks? On the value of catastrophic climate change," Journal of Environmental Economics and Management, Elsevier, vol. 74(C), pages 1-22.
    6. Epstein, Larry G. & Zin, Stanley E., 2001. "The independence axiom and asset returns," Journal of Empirical Finance, Elsevier, vol. 8(5), pages 537-572, December.
    7. René Garcia & Richard Luger & Eric Renault, 2000. "Asymmetric Smiles, Leverage Effects and Structural Parameters," Working Papers 2000-57, Center for Research in Economics and Statistics.
    8. Borovička, Jaroslav & Hansen, Lars Peter, 2014. "Examining macroeconomic models through the lens of asset pricing," Journal of Econometrics, Elsevier, vol. 183(1), pages 67-90.
    9. Colson, Gérard, 1993. "Prenons-nous assez de risque dans les théories du risque?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 69(1), pages 111-141, mars.
    10. Fossen, Frank M. & Glocker, Daniela, 2017. "Stated and revealed heterogeneous risk preferences in educational choice," European Economic Review, Elsevier, vol. 97(C), pages 1-25.
    11. Ryan Edwards, 2013. "The cost of uncertain life span," Journal of Population Economics, Springer;European Society for Population Economics, vol. 26(4), pages 1485-1522, October.
    12. Matthias Schmidt & Hermann Held & Elmar Kriegler & Alexander Lorenz, 2013. "Climate Policy Under Uncertain and Heterogeneous Climate Damages," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(1), pages 79-99, January.
    13. Lex Borghans & Angela Lee Duckworth & James J. Heckman & Bas ter Weel, 2008. "The Economics and Psychology of Personality Traits," Journal of Human Resources, University of Wisconsin Press, vol. 43(4).
    14. Stephen Satchell & Susan Thorp, 2007. "Scenario Analysis with Recursive Utility: Dynamic Consumption Plans for Charitable Endowments," Research Paper Series 209, Quantitative Finance Research Centre, University of Technology, Sydney.
    15. Hippolyte d’Albis & Emmanuel Thibault, 2018. "Ambiguous life expectancy and the demand for annuities," Theory and Decision, Springer, vol. 85(3), pages 303-319, October.
    16. Orszag, J. Michael & Yang, Hong, 1995. "Portfolio choice with Knightian uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 19(5-7), pages 873-900.
    17. Stefania Albanesi & Claudia Olivetti, 2006. "Gender roles and technological progress," 2006 Meeting Papers 411, Society for Economic Dynamics.
    18. Van Der Ploeg, F., 1989. "Risk Aversion, Intertemporal Substitution And Consumption: The Cara-Lq Problem," Papers 8953, Tilburg - Center for Economic Research.
    19. Mira Frick & Ryota Iijima & Tomasz Strzalecki, 2019. "Dynamic Random Utility," Econometrica, Econometric Society, vol. 87(6), pages 1941-2002, November.
    20. Fahrenwaldt, Matthias Albrecht & Jensen, Ninna Reitzel & Steffensen, Mogens, 2020. "Nonrecursive separation of risk and time preferences," Journal of Mathematical Economics, Elsevier, vol. 90(C), pages 95-108.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cla:levarc:7599. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.dklevine.com/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: David K. Levine (email available below). General contact details of provider: http://www.dklevine.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.