Utility theory with probability dependent outcome valuation: Extensions and applications

Edi Karni, Edward Schlee

Research output: Contribution to journalArticle

3 Scopus citations

Abstract

This article extends Karni's (1992) Utility Theory with Probability Dependent Outcome Valuation (UTP-DOV) to accommodate a wider set of preferences, and applies the new representation to a variety of decision problems under risk. First, we present a new, more general, axiomatization of UTPDOV that renders the underlying intuition more transparent. Second, we develop sufficient conditions under which UTPDOV satisfies the betweenness and the ordinal independence axioms. Finally, we examine functional forms of the UTPDOV model that are consistent with several well known departures from the independence axiom.

Original languageEnglish (US)
Pages (from-to)127-142
Number of pages16
JournalJournal of Risk and Uncertainty
Volume10
Issue number2
DOIs
StatePublished - Mar 1 1995

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Keywords

  • Allais paradox
  • Bergen paradox
  • betweenness
  • nonexpected utility theory
  • ordinal independence
  • probability dependent outcome valuation

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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