Von Neumann–Morgenstern utility theorem ≈ Von Neumann–Morgenstern utility theorem
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Retrospectives: How Economists Came to Accept Expected Utility Theory: The Case of Samuelson and Savage Open
Expected utility theory dominated the economic analysis of individual decision-making under risk from the early 1950s to the 1990. Among the early supporters of the expected utility hypothesis in the von Neumann–Morgenstern version were Mi…
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Risk Aversion and the Long Run Open
This article argues that Lara Buchak's risk-weighted expected utility (REU) theory fails to offer a true alternative to expected utility theory. Under commonly held assumptions about dynamic choice and the framing of decision problems, rat…
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Exponential utility maximization under model uncertainty for unbounded endowments Open
We consider the robust exponential utility maximization problem in discrete time: An investor maximizes the worst case expected exponential utility with respect to a family of nondominated probabilistic models of her endowment by dynamical…
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Accommodating stake effects under prospect theory Open
One of the stylized facts underlying prospect theory is a fourfold pattern of risk preferences. People have been shown to be risk seeking for small probability gains and large probability losses, while being risk averse for large probabili…
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Functional Decision Theory: A New Theory of Instrumental Rationality Open
This paper describes and motivates a new decision theory known as functional decision theory (FDT), as distinct from causal decision theory and evidential decision theory. Functional decision theorists hold that the normative principle for…
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ELLSBERG’S PARADOX AND THE VALUE OF CHANCES Open
What value should we put on our chances of obtaining a good? This paper argues that, contrary to the widely accepted theory of von Neumann and Morgenstern, the value of a chance of some good G may be a non-linear function of the value of G…
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Nonhuman Primates Satisfy Utility Maximization in Compliance with the Continuity Axiom of Expected Utility Theory Open
Expected Utility Theory (EUT), the first axiomatic theory of risky choice, describes choices as a utility maximization process: decision makers assign a subjective value (utility) to each choice option and choose the one with the highest u…
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Optimism and Pessimism with Expected Utility Open
Maximizing subjective expected utility is the classic model of decision making under uncertainty. Savage [Savage, Leonard J. (1954). The Foundation of Statistics. Wiley, New York] provides axioms on preference over acts that are equivalent…
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THE RELATIONSHIP BETWEEN UTILITY AND RISK: EXAMPLES FROM ECONOMICS Open
When the issues in economics are analyzeddeeply, the notion of utility is seen at the heart. As an important conceptutility research has stayed popular so far. There are several researchexamining utility from different perspectives. One of…
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Strength of preference over complementary pairs axiomatizes alpha-MEU preferences Open
Preferences over acts have an α-Maxmin Expected Utility (α-MEU) representation if they can be represented by the α-mixture of the worst and the best expected utility over a set of priors. The case α=1 is the Maxmin Expected Utility (MEU) m…
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Rational risk‐aversion: Good things come to those who weight Open
No existing normative decision theory adequately handles risk. Expected Utility Theory is overly restrictive in prohibiting a range of reasonable preferences. And theories designed to accommodate such preferences (for example, Buchak's (20…
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Approximate Expected Utility Rationalization Open
We propose a new measure of deviations from expected utility theory. For any positive number e, we give a characterization of the datasets with a rationalization that is within e (in beliefs, utility, or perceived prices) of expected utili…
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Optimal allocations with <i>α</i>‐MaxMin utilities, Choquet expected utilities, and prospect theory Open
The analysis of optimal risk sharing has been thus far largely restricted to nonexpected utility models with concave utility functions, where concavity is an expression of ambiguity aversion and/or risk aversion. This paper extends the ana…
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On the falsifiability and learnability of decision theories Open
We study the degree of falsifiability of theories of choice. A theory is easy to falsify if relatively small data sets are enough to guarantee that the theory can be falsified: the Vapnik–Chervonenkis (VC) dimension of a theory is the larg…
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Economics versus Psychology. Risk, Uncertainty and the Expected Utility Theory Open
The present contribution examines the emergence of expected utility theory by John von Neumann and Oskar Morgenstern, the subjective the expected utility theory by Savage, and the problem of choice under risk and uncertainty, focusing in p…
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RISK SHARING WITH EXPECTED AND DUAL UTILITIES Open
This paper analyzes optimal risk sharing among agents that are endowed with either expected utility preferences or with dual utility preferences. We find that Pareto optimal risk redistributions and the competitive equilibria can be obtain…
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Nash was a first to axiomatize expected utility Open
Nash is famous for many inventions, but it is less known that he, simultaneously with Marschak, also was the first to axiomatize expected utility for risk. In particular, these authors were the first to state the independence condition, a …
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Learnability and Models of Decision Making under Uncertainty Open
We study whether some of the most important models of decision-making under uncertainty are uniformly learnable, in the sense of PAC (probably approximately correct) learnability. Many studies in economics rely on Savage's model of (subjec…
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Decision theory unbound Open
Countenancing unbounded utility in ethics gives rise to deep puzzles in formal decision theory. Here, these puzzles are taken as an invitation to assess the most fundamental principles relating probability and value, with the aim of demons…
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Approximate Expected Utility Rationalization Open
We propose a new measure of deviations from expected utility, given data on economic choices under risk and uncertainty. In a revealed preference setup, and given a positive number e, we provide a characterization of the datasets whose dev…
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Quantifying Risk Perception: The Entropy Decision Risk Model Utility (EDRM-U) Open
Risk perception can be quantified in measurable terms of risk aversion and sensitivity. While conducting research on the quantization of programmatic risk, a bridge between positive and normative decision theories was discovered through th…
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Risk Aversion as a Perceptual Bias Open
The theory of expected utility maximization (EUM) explains risk aversion as due to diminishing marginal utility of wealth. However, observed choices between risky lotteries are difficult to reconcile with EUM: for example, in the laborator…
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What Are Asset Demand Tests of Expected Utility Really Testing?* Open
Assuming the classic contingent claim setting, a number of financial asset demand tests of Expected Utility have been developed and implemented in experimental settings. However, the domain of preferences of these asset demand tests differ…
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Approximate Expected Utility Rationalization Open
We propose a new measure of deviations from expected utility theory. For any positive number~$e$, we give a characterization of the datasets with a rationalization that is within~$e$ (in beliefs, utility, or perceived prices) of expected u…
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Comparing utility functions between risky and riskless choice in rhesus monkeys Open
Decisions can be risky or riskless, depending on the outcomes of the choice. Expected Utility Theory describes risky choices as a utility maximization process: we choose the option with the highest subjective value (utility), which we comp…
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Multiple utility constrained multi-objective programs using Bayesian theory Open
A utility function is an important tool for representing a DM's preference. We adjoin utility functions to multi-objective optimization problems. In current studies, usually one utility function is used for each objective function. Situati…
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Insurance Premium Calculation under Continuous Cumulative Prospect Theory Open
We define a premium principle under the continuous cumulative prospect theory which extends the equivalent utility principle. In prospect theory risk attitude and loss aversion are shaped via a value function, whereas a transformation of o…
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Decision Making under Uncertainty: An Experimental Study in Market Settings Open
We implement nonparametric revealed-preference tests of subjective expected utility theory and its generalizations. We find that a majority of subjects' choices are consistent with the maximization of some utility function. They respond to…
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Approval-directed agency and the decision theory of Newcomb-like problems Open
Decision theorists disagree about how instrumentally rational agents, i.e., agents trying to achieve some goal, should behave in so-called Newcomb-like problems, with the main contenders being causal and evidential decision theory. Since t…
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Discounted and Expected Utility from the Probability and Time Trade-Off Model Open
This paper shows the interaction between probabilistic and delayed rewards. In decision- making processes, the Expected Utility (EU) model has been employed to assess risky choices whereas the Discounted Utility (DU) model has been applied…