Axiomatization of a Preference for Most Probable Winner

Pavlo R. Blavatskyy

No 230, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

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 (solvability, convexity and symmetry) and one less standard axiom (a fanning-in). A preference for the most probable winner can be represented by a skewsymmetric 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: expected utility theory; axiomatization; betweenness; fanning-in; skew-symmetric bilinear utility; regret theory (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
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Citations: View citations in EconPapers (19)

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