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: Suggested Citation