Axiomatization of Stochastic Models for Choice under Uncertainty
This paper develops a theory of probabilistic models for risky choices. Part of this theory can be viewed as an extension of the expected utility theory to account for bounded rationality. One probabilistic version of the Archimedean Axiom and two versions of the Independence Axiom are proposed. In addition, additional axioms are proposed of which one is Luce's Independence from Irrelevant Alternatives. It is demonstrated that different combinations of the axioms yield different characterizations of the probabilities for choosing the respective risky prospects. An interesting feature of the models developed is that they allow for violations of the expected utility theory known as the common consequence effect and the common ratio effect.
|Date of creation:||Jul 2006|
|Contact details of provider:|| Postal: P.O.Box 8131 Dep, N-0033 Oslo, Norway|
Phone: (+47) 21 09 00 00
Fax: +47 - 62 88 55 95
Web page: http://www.ssb.no/en/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Dagsvik, John k: & Strøm, Steinar, 2003.
"A Stochastic Model for the Utility of Income,"
32/2003, Oslo University, Department of Economics.
- John K. Dagsvik & Steinar Strøm & Zhiyang Jia, 2003. "A Stochastic Model for the Utility of Income," Discussion Papers 358, Statistics Norway, Research Department.
- Loomes, Graham & Sugden, Robert, 1998. "Testing Different Stochastic Specifications of Risky Choice," Economica, London School of Economics and Political Science, vol. 65(260), pages 581-598, November.
- John K. Dagsvik, 2005. "Choice under Uncertainty and Bounded Rationality," Discussion Papers 409, Statistics Norway, Research Department.
- McFadden, Daniel L., 1984. "Econometric analysis of qualitative response models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 24, pages 1395-1457 Elsevier.
- Iverson, G. & Falmagne, J. -C., 1985. "Statistical issues in measurement," Mathematical Social Sciences, Elsevier, vol. 10(2), pages 131-153, October.
- Faruk Gul & Wolfgang Pesendorfer, 2006. "Random Expected Utility," Econometrica, Econometric Society, vol. 74(1), pages 121-146, 01.
- Hey, John D & Orme, Chris, 1994. "Investigating Generalizations of Expected Utility Theory Using Experimental Data," Econometrica, Econometric Society, vol. 62(6), pages 1291-1326, November.
- Loomes, Graham & Sugden, Robert, 1995. "Incorporating a stochastic element into decision theories," European Economic Review, Elsevier, vol. 39(3-4), pages 641-648, April.
- 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.
- Carbone, Enrica, 1997. "Investigation of stochastic preference theory using experimental data," Economics Letters, Elsevier, vol. 57(3), pages 305-311, December.
- Hey, John D., 1995. "Experimental investigations of errors in decision making under risk," European Economic Review, Elsevier, vol. 39(3-4), pages 633-640, April.
- L. Thurstone, 2010. "Psychophysical Analysis," Levine's Working Paper Archive 458, David K. Levine.
- Dagsvik, John K. & Strom, Steinar & Jia, Zhiyang, 2006. "Utility of income as a random function: Behavioral characterization and empirical evidence," Mathematical Social Sciences, Elsevier, vol. 51(1), pages 23-57, January.
- John K. Dagsvik & Steinar Strøm & Zhiyang Jia, 2005. "Utility of Income as a Random Function. Behavioral Characterization and Empirical Evidence," Discussion Papers 431, Statistics Norway, Research Department.
- 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.
- Karni, Edi & Schmeidler, David, 1991. "Utility theory with uncertainty," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 33, pages 1763-1831 Elsevier.
- Gerard Debreu, 1957. "Stochastic Choice and Cardinal Utility," Cowles Foundation Discussion Papers 39, Cowles Foundation for Research in Economics, Yale University. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ssb:dispap:465. 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: (L MaasÃ¸)
If references are entirely missing, you can add them using this form.