A Simple Behavioral Characterization of Subjective Expected Utility

Pavlo Blavatskyy ()

Operations Research, 2013, vol. 61, issue 4, 932-940

Abstract: Subjective expected utility is the most widely used model to represent preferences under uncertainty (when objective probabilities of events may not be known). This paper presents a new behavioral characterization (preference axiomatization) of subjective expected utility. The latter is derived from a behavioral assumption of cardinal independence, also known as standard sequence invariance. This axiom requires that a standard sequence of outcomes (equally spaced in terms of utility) is independent of the conditional event. This axiom is a weaker version of the trade-off consistency condition of Wakker [Wakker PP (1984) Cardinal coordinate independence for expected utility. J. Math. Psych. 28:110–117]. The main representation theorem is derived both in the connected topology approach and the algebraic approach (when step-continuity is replaced with solvability and Archimedean axioms).

Keywords: subjective uncertainty; ambiguity; subjective expected utility; trade-off consistency; connected topology approach; algebraic approach (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:61:y:2013:i:4:p:932-940

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