Axiomatization of a Preference for Most Probable Winner

IEW Working Paper No. 230

21 Pages Posted: 10 Feb 2005

Date Written: February 2005

Abstract

In binary choice between discrete outcome lotteries, an individual may prefer lottery L1 to lottery L2 when the probability that L1 delivers a better outcome than L2 is higher than the probability that L2 delivers a better outcome than L1. Such a preference can be rationalized by three standard axioms (solvability, convexity and symmetry) and one less standard axiom (a fanning-in). A preference for the most probable winner can be represented by a skew-symmetric bilinear utility function. Such a utility function has the structure of a regret theory when lottery outcomes are perceived as ordinal and the assumption of regret aversion is replaced with a preference for a win. The empirical evidence supporting the proposed system of axioms is discussed.

Keywords: expected utility theory, axiomatization, betweenness, fanning-in, skew-symmetric bilinear utility, regret theory

JEL Classification: C91, D81

Suggested Citation

Blavatskyy, Pavlo R., Axiomatization of a Preference for Most Probable Winner (February 2005). IEW Working Paper No. 230, Available at SSRN: https://ssrn.com/abstract=664441 or http://dx.doi.org/10.2139/ssrn.664441

Pavlo R. Blavatskyy (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France