Lexicographic Probabilities and Choice under Uncertainty

Lawrence Blume, Adam Brandenburger and Eddie Dekel

Econometrica, 1991, vol. 59, issue 1, 61-79

Abstract: Conventional Bayesian theory of choice under uncertainty, subjective expected utility theory, fails to satisfy the properties of admissibility and existence of well-defined conditional probabilities; weakly dominated acts may be chosen, and the usual definition of conditional probabilities applies only to nonnull events. This paper develops a non-Archimedean variant of subjective expected utility where decisionmakers have lexicographic beliefs. This generalization can be made to satisfy admissibility and yield well-defined conditional probabilities and at the same time allow for "null" events. Copyright 1991 by The Econometric Society.

Date: 1991
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