Axiomatization of a Preference for Most Probable Winner |
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Authors: | Pavlo R. Blavatskyy |
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Affiliation: | (1) Institute for Empirical Research in Economics, University of Zurich, Winterthurerstrasse 30, CH-8006 Zurich, Switzerland |
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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. |
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Keywords: | expected utility theory axiomatization betweenness fanning-in skew-symmetric bilinear utility regret theory |
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