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Lexicographic expected utility without completeness

Dino Borie ()

Theory and Decision, 2016, vol. 81, issue 2, 167-176

Abstract: Abstract Standard theories of expected utility require that preferences are complete, and/or Archimedean. We present in this paper a theory of decision under uncertainty for both incomplete and non-Archimedean preferences. Without continuity assumptions, incomplete preferences on a lottery space reduce to an order-extension problem. It is well known that incomplete preferences can be extended to complete preferences in the full generality, but this result does not necessarily hold for incomplete preferences which satisfy the independence axiom, since it may obviously happen that the extension does not satisfy the independence axiom. We show, for incomplete preferences on a mixture space, that an extension which satisfies the independence axiom exists. We find necessary and sufficient conditions for a preorder on a finite lottery space to be representable by a family of lexicographic von Neumann–Morgenstern Expected Utility functions.

Keywords: Lexicographic Expected utility theory; Order extension; Preorder (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:kap:theord:v:81:y:2016:i:2:d:10.1007_s11238-015-9523-y