A Model of Probabilistic Choice Satisfying First-Order Stochastic Dominance

Pavlo R. Blavatskyy ()
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Pavlo R. Blavatskyy: Institute of Public Finance, University of Innsbruck, A-6020 Innsbruck, Austria

Management Science, 2011, vol. 57, issue 3, 542-548

Abstract: This paper presents a new model of probabilistic binary choice under risk. In this model, a decision maker always satisfies first-order stochastic dominance. If neither lottery stochastically dominates the other alternative, a decision maker chooses in a probabilistic manner. The proposed model is derived from four standard axioms (completeness, weak stochastic transitivity, continuity, and common consequence independence) and two relatively new axioms. The proposed model provides a better fit to experimental data than do existing models. The baseline model can be extended to other domains such as modeling variable consumer demand. This paper was accepted by Peter Wakker, decision analysis.

Keywords: probabilistic choice; first-order stochastic dominance; random utility; strong utility (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:57:y:2011:i:3:p:542-548

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