A Note on Luce-Fishburn Axiomatization of Rank-Dependent Utility

Liping Liu ()

Journal of Risk and Uncertainty, 2004, vol. 28, issue 1, 55-71

Abstract: In this paper, I provide a new axiomatization for rank-dependent utilities. I show that, along with weak order, dominance, and the binary rank-dependent representation, the decomposition of certainty equivalents is sufficient to derive the general rank-dependent model of Luce and Fishburn (1991, 1995). My axiomatization not only simplifies and generalizes the theory proposed by Luce and Fishburn (1991, 1995) but also is more empirically appealing. The result is comparable to that obtained by Quiggin (1982) in the sense that both involve a sort of decomposition of certainty equivalents and both do not use compound lotteries. However, my axiomatization does not have the restriction that the weight of probability 1/2 is 1/2. Copyright Kluwer Academic Publishers 2004

Keywords: utility theory; rank-dependent utility; axiomatization (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1023/B:RISK.0000009436.14961.6a

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