SSB utility theory and decision-making under uncertainty (Q759614): Difference between revisions

In the few decades since the expected utility theories of von Neumann and Morgenstern, Ramsey, and Savage first gained wide acceptance, an impressive body of evidence has appeared which indicates that certain of their principles of coherent and consistent preferences are systematically violated by many people. This has encouraged the development of more general theories of decision-making under risk and under uncertainty that weaken earlier axioms to accommodate observed violations of those axioms. One of the generalizations of the von Neumann-Morgenstern theory weakens their transitivity and independence axioms to obtain a notion of ''nontransitive measurable utility'' in which preferences are represented by the positive part of a skew-symmetric bilinear functional on pairs of lotteries or risky decisions. The present paper applies the axioms of this ''SSB utility theory'' to preferences between lottery acts in a Savage-type states-of-the-world formulation of decision-making under uncertainty. It also examines the effects of within-state and between- state consistency principles on the basic representation of preferences provided by this application. A dominant concern of the paper is the need for more flexible foundational theories of decision-making under uncertainty. It is hoped that the present generalizations of the Ramsey-Savage theory will contribute positively to this concern.