An Alternative Subjective Expected Utility Representation Theorem

25 Pages Posted: 19 Aug 2012

See all articles by Christoph Kuzmics

Christoph Kuzmics

University of Graz - Department of Economics

Date Written: August 19, 2012

Abstract

A decision maker (DM) is asked to make choices from a set of acts, which entail both risk and uncertainty in the sense of knight (1921). Extending Raiffa's (1961) argument I show that, provided the DM can choose acts objectively randomly (by flipping her own fair coin, for instance), provided the DM's preferences over objective lotteries satisfy the von Neumann and Morgenstern (1944) axioms, and provided the DM's preferences over the space of all random acts satisfy Anscombe and Aumann's (1963) axioms of reversal of order and dominance, then any undominated random act (that is any potential choice the DM can make) can also be rationalized by the DM maximizing her subjective expected utility for some subjective belief.

Keywords: ambiguity, decision theory, Knightian uncertainty, experiments

JEL Classification: C72, C81, C90, D01, D03, D81

Suggested Citation

Kuzmics, Christoph, An Alternative Subjective Expected Utility Representation Theorem (August 19, 2012). Available at SSRN: https://ssrn.com/abstract=2131714 or http://dx.doi.org/10.2139/ssrn.2131714

Christoph Kuzmics (Contact Author)

University of Graz - Department of Economics ( email )

Universitaetsstrasse 15
RESOWI - F4
Graz, 8010
Austria

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