Stochastic Expected Utility for Binary Choice: New Representations

Matthew Ryan ()
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Matthew Ryan: School of Economics, Auckland University of Technology

No 2018-06, Working Papers from Auckland University of Technology, Department of Economics

Abstract: We present new axiomatisations for various models of binary stochastic choice that may be characterised as "expected utility maximisation with noise". These include axiomatisations of strictly (Ryan 2018a) and simply (Tversky and Russo, 1969) scalable models, plus strict (Ryan, 2015) and strong (Debreu, 1958) Fechner models. Our axiomatisations complement the important contributions of Blavatskyy (2008) and Dagsvik (2008). Our representation theorems set all models on a common axiomatic foundation, progressively augmented by additional axioms necessary to characterise successively more restrictive models. In particular, we are able to decompose Blavatskyy's (2008) common consequence independence axiom into two parts: one that underwrites the linearity of utility and another than underwrites the Fechnerian structure of noise. This has signifcant advantages for testing the Fechnerian models, as we discuss.

Date: 2018-07
New Economics Papers: this item is included in nep-mic and nep-upt
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