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Facts, Norms and Expected Utility Functions

Author

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  • Sophie Jallais

    (PHARE - Pôle d'Histoire de l'Analyse et des Représentations Économiques - UP1 - Université Paris 1 Panthéon-Sorbonne)

  • Pierre-Charles Pradier

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, SAMOS - Statistique Appliquée et MOdélisation Stochastique - UP1 - Université Paris 1 Panthéon-Sorbonne)

  • David Teira

    (Dpto. de Lógica, Historia y Filosofía de la ciencia. UNED - UNED - Universidad Nacional de Educación a Distancia)

Abstract

In this paper we want to explore an argumentative pattern that provides a normative justification for expected utility functions grounded on empirical evidence, showing how it worked in three different episodes of their development. The argument claims that we should prudentially maximize our expected utility since this is the criterion effectively applied by those who are considered wisest in making risky choices (be it gamblers or businessmen). Yet, to justify the adoption of this rule, it should be proven that this is empirically true: i.e., that a given function allows us to predict the choices of that particular class of agents. We show how expected utility functions were introduced and contested in accordance to this pattern in the 18th century and how it recurred in the 1950s when M. Allais made his case against the neobernoullians.

Suggested Citation

  • Sophie Jallais & Pierre-Charles Pradier & David Teira, 2008. "Facts, Norms and Expected Utility Functions," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00274361, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00274361
    DOI: 10.1177/0952695108091414
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00274361
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    References listed on IDEAS

    as
    1. Sophie Jallais & Pierre-Charles Pradier, 2005. "The Allais Paradox and its Immediate Consequences for Expected Utility Theory," Post-Print halshs-00311396, HAL.
    2. Daniel Ellsberg, 2000. "Risk, Ambiguity and the Savage Axioms," Levine's Working Paper Archive 7605, David K. Levine.
    3. Philippe Mongin, 2006. "Value Judgments and Value Neutrality in Economics," Economica, London School of Economics and Political Science, vol. 73(290), pages 257-286, May.
    4. Edward E. Schlee, 1992. "Marshall, Jevons, and the Development of the Expected Utility Hypothesis," History of Political Economy, Duke University Press, vol. 24(3), pages 729-744, Fall.
    5. M. Allais, 1957. "Method of Appraising Economic Prospects of Mining Exploration over Large Territories: Algerian Sahara Case Study," Management Science, INFORMS, vol. 3(4), pages 285-347, July.
    6. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 75(4), pages 643-669.
    7. Milton Friedman & L. J. Savage, 1952. "The Expected-Utility Hypothesis and the Measurability of Utility," Journal of Political Economy, University of Chicago Press, vol. 60(6), pages 463-463.
    8. Chris Starmer, 2005. "Normative notions in descriptive dialogues," Journal of Economic Methodology, Taylor & Francis Journals, vol. 12(2), pages 277-289.
    9. Francesco Guala, 2001. "The logic of normative falsification: rationality and experiments in decision theory," Journal of Economic Methodology, Taylor & Francis Journals, vol. 7(1), pages 59-93.
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    Cited by:

    1. Floris Heukelom, 2007. "Kahneman and Tversky and the Origin of Behavioral Economics," Tinbergen Institute Discussion Papers 07-003/1, Tinbergen Institute.

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