SSB utility theory: An economic perspective (Q759613): Difference between revisions

SSB utility theory for decision-making under risk is a generalization of the expected utility theory of von Neumann and Morgenstern that preserves much of their structure for the quantitative representation of preferences, including continuity, convexity, and monotonicity, but drops their transitivity and independence axioms. It represents preferences by a skew-symmetric bilinear functional \(\phi\) that is unique up to multiplication by a positive constant and has \(\phi (p,q)>0\) if and only if risky prospect p is preferred to risky prospect q. This generalization has far-reaching consequences. It is compatible with the phenomena of preference cycles, preference reversals, and systematic violations of independence; provides a viable theory of choice based on maximally preferred alternatives; supports a rationale for social choice lotteries that is untroubled by cyclical majorities and is consistent with majority choice and Pareto optimality; offers a much more general theory of risk attitudes; retains intact the central propositions of stochastic dominance; and suggests a new approach to decision making in the face of uncertainty.