Reconciling Support Theory and the Book-Making Principle

Posted: 27 Oct 2009

Date Written: October 26, 2009

Abstract

Support theory postulates that an individual’s probability judgment for a particular event depends on the description of that event. We analyze decisions based on such a premise and demonstrate the theory’s incompatibility with popular models of choice under uncertainty. In particular, we show how support theory’s subjective probabilities are at odds with multi-prior beliefs in addition to additive and nonadditive probabilities. We propose a behavioral relaxation of a well-known consistency argument — the book-making principle, in order to accommodate such description-dependent subjective probabilities. As a consequence, we provide a characterization of a set of decisions where the underlying probability judgments follow from support theory. This result offers a unique way for using description-dependent subjective probabilities as consistent inputs for decision analysis and can aid the design of elicitation procedures.

Keywords: book-making principle, support theory, nonexpected utility

JEL Classification: D81

Suggested Citation

La-ornual, Dolchai, Reconciling Support Theory and the Book-Making Principle (October 26, 2009). Journal of Risk and Uncertainty, Vol. 38, No. 3, 2009, Available at SSRN: https://ssrn.com/abstract=1494335

Dolchai La-ornual (Contact Author)

Mahidol University ( email )

Faculty of Engineering
Mahidol University, Salaya
Nakhon Pathom, Nakhon Pathom 73170
Thailand

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

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