Random Binary Choices that Satisfy Stochastic Betweenness
Experimental evidence suggests that the process of choosing between lotteries (risky prospects) is stochastic and is better described through choice probabilities than preference relations. Binary choice probabilities admit a Fechner representation if there exists a utility function u such that the probability of choosing a over b is a non-decreasing function of the utility difference u (a) - u (b). The representation is strict if u (a) u (b) precisely when the decision-maker is at least as likely to choose a from fa; bg as to choose b. Blavatskyy (2008) obtained necessary and su¢ cient conditions for a strict Fechner representation in which u has the expected utility form. One of these is the common consequence independence (CCI) axiom (ibid.,Axiom 4), which is a stochastic analogue of the mixture independence condition on preferences. Blavatskyy also conjectured that by weakening CCI to a condition he called stochastic betweenness (SB) a stochastic analogue of the betweenness condition on preferen-ces (Chew (1983)) one obtains necessary and suffcient conditions for a strict Fechner representation in which u has the implicit expected utility form (Dekel (1986)). We show that Blavatskyys conjecture is false, and provide a valid set of necessary and su¢ cient conditions for the desired representation.
Year of publication: |
2017
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Authors: | Ryan, Matthew |
Publisher: |
Auckland : Auckland University of Technology (AUT), Faculty of Business, Economics and Law |
Saved in:
freely available
Series: | Economics Working Paper Series ; 2017/01 |
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Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Working Paper |
Language: | English |
Other identifiers: | hdl:10419/242548 [Handle] RePEc:aut:wpaper:201701 [RePEc] |
Source: |
Persistent link: https://www.econbiz.de/10012624270
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