Random Expected Utility

We develop and analyze a model of random choice and random expected utility. A decision problem is a finite set of lotteries that describe the feasible choices. A random choice rule associates with each decision problem a probability measure over choices. A random utility function is a probability m...

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Bibliographic Details
Published in:Econometrica 2006-01, Vol.74 (1), p.121-146
Main Authors: Gul, Faruk, Pesendorfer, Wolfgang
Format: Article
Language:English
Subjects:
Algebra
Applications
Applied sciences
Decision making
Decision theory
Decision theory. Utility theory
Determinism
Economic models
Economic theory
Exact sciences and technology
Expected utility
Insurance, economics, finance
Linear transformations
Lotteries
Market theory
Mathematical methods
Mathematics
Measurement
Microeconomics
Operational research and scientific management
Operational research. Management science
Polyhedrons
Polytopes
Probability and statistics
random choice
Random utility
Random variables
Rational expectations
Sciences and techniques of general use
Statistics
Studies
Utility functions
Utility models
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Summary:We develop and analyze a model of random choice and random expected utility. A decision problem is a finite set of lotteries that describe the feasible choices. A random choice rule associates with each decision problem a probability measure over choices. A random utility function is a probability measure over von Neumann-Morgenstern utility functions. We show that a random choice rule maximizes some random utility function if and only if it is mixture continuous, monotone (the probability that a lottery is chosen does not increase when other lotteries are added to the decision problem), extreme (lotteries that are not extreme points of the decision problem are chosen with probability 0), and linear (satisfies the independence axiom).
ISSN:0012-9682
1468-0262
DOI:10.1111/j.1468-0262.2006.00651.x