Choice among Lotteries when Preferences are Stochastic

John Dagsvik

Discussion Papers from Statistics Norway, Research Department

Abstract: This paper discusses the problem of specifying probabilistic models for choices (strategies) with uncertain outcomes. The point of departure is an extension of the axiom system of the von Neumann-Morgenstern Expected utility theory to the case when the preferences are stochastic. This extended axiom system is combined with Luce Choice Axiom; "Independence from Irrelevant Alternatives", and imply a particular choice model that contains the Luce model as a special case. An additional invariance assumption is subsequently proposed that yields a complete characterization of the mathematical structure of the model.

Keywords: Random tastes; choice among lotteries; random utility models; bounded rationality; probabilistic choice models; independence from irrelevant alternatives. (search for similar items in EconPapers)
JEL-codes: C25 D11 D81 (search for similar items in EconPapers)
Date: 1998-06
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