Choice under Uncertainty and Bounded Rationality

John K. Dagsvik

Discussion Papers from Research Department of Statistics Norway

Abstract: This paper develops a theory for probabilistic models for risky choices that 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

Keywords: Random tastes; bounded rationality; independence from irrelevant alternatives; choice among lotteries; probabilistic choice for uncertain outcomes. (search for similar items in EconPapers)
JEL-codes: C25 D11 D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe and nep-dcm
Date: 2005-03
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