Axiomatization of a Preference for Most Probably Winner

Pavlo Blavatskyy

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: In binary choice between discrete outcome lotteries, an individual may prefer lottery L1 to lottery L2 when the probability that L1 delivers a better outcome than L2 is higher than the probability that L2 delivers a better outcome than L1. Such a preference can be rationalized by three standard axioms (completeness, continuity and first order stochastic dominance) and two less standard ones (weak independence and a fanning-in). A preference for the most probable winner can be represented by a skew-symmetric bilinear utility function. Such a utility function has the structure of a regret theory when lottery outcomes are perceived as ordinal and the assumption of regret aversion is replaced with a preference for a win. The empirical evidence supporting the proposed system of axioms is discussed.

Keywords: EUT; Axiomatization; Stochastic dominance; Betweenness; Weak independence; Fanning-in; Regret theory. (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Date: 2004-07
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Citations: View citations in EconPapers (1)

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