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Multiple Periods Destroy the Axiomatic Base of Expected Utility Theory and its Standard Generalisations

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  • Pope, Robin

Abstract

It is here shown that the extension of expected utility theory to multiple periods destroys the axiomatic base by introducing timing contradictions in what the chooser knows at a single time point. It is shown that some of these timing contradictions remain even if, as Samuelson (1952) proposed, no segment of the outcome space (to which utility attaches) commences before all risk is passed.

Suggested Citation

  • Pope, Robin, 2006. "Multiple Periods Destroy the Axiomatic Base of Expected Utility Theory and its Standard Generalisations," Bonn Econ Discussion Papers 30/2006, University of Bonn, Bonn Graduate School of Economics (BGSE).
    • Handle: RePEc:zbw:bonedp:302006
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    References listed on IDEAS

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    1. M. S. Feldstein, 1969. "Mean-Variance Analysis in the Theory of Liquidity Preference and Portfolio Selection," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 36(1), pages 5-12.
    2. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    3. Peter Klibanoff & Emre Ozdenoren, 2007. "Subjective recursive expected utility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 30(1), pages 49-87, January.
    4. Karni, Edi, 2006. "Subjective expected utility theory without states of the world," Journal of Mathematical Economics, Elsevier, vol. 42(3), pages 325-342, June.
    5. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
    6. Robin E. Pope, 2001. "Evidence of Deliberate Violations of Dominance Due to Secondary Satisfaction - Attraction to Chance," Homo Oeconomicus, Institute of SocioEconomics, vol. 18, pages 47-76.
    7. K. Borch, 1969. "A Note on Uncertainty and Indifference Curves," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 36(1), pages 1-4.
    8. Harsanyi, John C, 1978. "Bayesian Decision Theory and Utilitarian Ethics," American Economic Review, American Economic Association, vol. 68(2), pages 223-228, May.
    9. Ulrich Schmidt & Stefan Traub (ed.), 2005. "Advances in Public Economics: Utility, Choice and Welfare," Theory and Decision Library C, Springer, number 978-0-387-25706-8, January.
    10. Andrew Caplin & John Leahy, 2001. "Psychological Expected Utility Theory and Anticipatory Feelings," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 55-79.
    11. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56(4), pages 279-279.
    12. Pope, Robin, 2004. "Biases from omitted risk effects in standard gamble utilities," Journal of Health Economics, Elsevier, vol. 23(4), pages 695-735, July.
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    Cited by:

    1. Pope, Robin & Selten, Reinhard, 2009. "Risk in a Simple Temporal Framework for Expected Utility Theory and for SKAT, the Stages of Knowledge Ahead Theory," Bonn Econ Discussion Papers 27/2009, University of Bonn, Bonn Graduate School of Economics (BGSE).
    2. Pope, Robin & Selten, Reinhard, 2009. "Risk and Expected Utility Theory," Bonn Econ Discussion Papers 5/2009, University of Bonn, Bonn Graduate School of Economics (BGSE).
    3. Robin Pope, 2015. "Attention deficit hyperactivity disorders, panic attacks, epileptic fits, depressions and dementias from missing out on appropriate fears and hopes," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 14(1), pages 107-127, June.

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    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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