Probabilistic Sophistication and Stochastic Monotonicity in the Savage Framework

16 Pages Posted: 15 Aug 2007

See all articles by Simon Grant

Simon Grant

Rice University - Department of Economics; Australian National University

Hatice Ozsoy

California Institute of Technology

Ben Polak

Yale University - Department of Economics

Date Written: August 2007

Abstract

Machina & Schmeidler (1992) show that probabilistic sophistication can be obtained in a Savage setting without imposing expected utility by dropping Savage's axiom P2 (sure-thing principle) and strengthening his axiom P4 (weak comparative probability). Their stronger axiom, however, embodies a degree of separability analogous to P2. In this note, we obtain probabilistic sophistication using Savage's original axiom P4 and a weaker analog of Savage's P2.

Keywords: Subjective probability; Probabilistic sophistication, Stochastic monotonicity, Sure-thing principle, Cumulative dominance

JEL Classification: D81

Suggested Citation

Grant, Simon Harold and Ozsoy, Hatice and Polak, Benjamin, Probabilistic Sophistication and Stochastic Monotonicity in the Savage Framework (August 2007). Cowles Foundation Discussion Paper No. 1621, Available at SSRN: https://ssrn.com/abstract=1007025

Simon Harold Grant

Rice University - Department of Economics ( email )

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Australian National University ( email )

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Hatice Ozsoy

California Institute of Technology ( email )

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Benjamin Polak (Contact Author)

Yale University - Department of Economics ( email )

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United States
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203-432-5779 (Fax)

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