EconPapers    
Economics at your fingertips  
 

Probabilistic independence axiom

Pavlo Blavatskyy ()
Additional contact information
Pavlo Blavatskyy: Montpellier Business School

The Geneva Risk and Insurance Review, 2021, vol. 46, issue 1, No 2, 34 pages

Abstract: Abstract One of the most well-known theories of decision making under risk is expected utility theory based on the independence axiom. The independence axiom postulates that decision maker’s preferences between two lotteries are not affected by mixing both lotteries with the same third lottery (in identical proportions). The probabilistic independence axiom (also known as the cancelation axiom) extends this classic independence axiom to situations when a decision maker chooses in a probabilistic manner (i.e., she does not necessarily prefer the same choice alternative when repeatedly presented with the same choice set). Probabilistic choice may occur for a variety of reasons such as unobserved attributes of choice alternatives, imprecision of preferences, random errors/noise in decisions. According to probabilistic independence axiom, the probability that a decision maker chooses one lottery over another does not change when both lotteries are mixed with the same third lottery (in identical proportions). This paper presents a model of probabilistic binary choice under risk based on this probabilistic independence axiom. The presented model generalizes an incremental expected utility advantage model of Fishburn (Int Econ Rev 19(3):633–646, 1978) and stronger utility model of Blavatskyy (Theory Decis 76(2):265–286, 2014).

Keywords: Decision making; Risk; Independence axiom; Probabilistic choice (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1057/s10713-019-00046-8 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:genrir:v:46:y:2021:i:1:d:10.1057_s10713-019-00046-8

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10713

DOI: 10.1057/s10713-019-00046-8

Access Statistics for this article

The Geneva Risk and Insurance Review is currently edited by Michael Hoy and Nicolas Treich

More articles in The Geneva Risk and Insurance Review from Palgrave Macmillan, International Association for the Study of Insurance Economics (The Geneva Association) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

 
Page updated 2022-05-12
Handle: RePEc:pal:genrir:v:46:y:2021:i:1:d:10.1057_s10713-019-00046-8