Unbounded expected utility and continuity

DOI10.1016/0165-4896(84)90096-9MaRDI QIDQ761228zbMATH OpenOpenAlexFDO

Authors Lars Tyge Nielsen

Publication date 1984

Published in Mathematical Social Sciences (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1016/0165-4896(84)90096-9

zbMATH Keywords

expected- utilityprobability distribution of outcomesunbounded utilityweak convergence of probability measures

Mathematics Subject Classification ID

Decision theory (91B06) Utility theory (91B16)

Review text

A decision-maker often does not know what the outcome of a particular action will be; instead, he associates with each possible action a (subjective) probability distribution of outcomes. His problem is to choose a preferred probability distribution subject to whatever constraints he is facing. The decision-maker's preference structure can be described by a measurable space of outcomes, a set of probability measures on the set of outcomes, and a binary relation (preference relation) on those probability measures. Subject to certain basic assumptions, this paper gives necessary and sufficient conditions for a preference structure to conform to the expected-utility hypothesis: there exists a real function (utility function) defined on the set of outcomes, integrable with respect to all members of the set of probability measures where the preference relation is defined, such that one probability measure is preferred to another if and only if it yields a higher expected value of the utility function. Nothing is assumed or concluded about boundedness of the utility function. Most previous axiomatic treatments of expected utility have required the utility function to be bounded because integrability implies boundedness when the set of probability measures is large enough. However, since applied work often uses unbounded functional forms, it is desirable to have an axiomatic theory available which allows for unboundedness by restricting the set of probability measures. The difficulty is to impose axioms which are formulated entirely in terms of the preference relation and the set of probability measures without direct reference to the utility function. The issue is closely related to the St. Petersburg paradox. Another advantage of this paper over previous contributions is that the set of probability measures is not assumed to be convex. The mathematical tools used in the paper are topological in nature and have to do with weak convergence of probability measures.

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Cites work

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Cited in

(28)

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• The topology of fear
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• Standard decision theory corrected.
• Upper and lower bounds for expected utility
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• Preferences over all random variables: incompatibility of convexity and continuity
• The measure representation: A correction
• Smooth preferences and the approximate expected utility hypothesis
• How quasi rational are you? II. Chern curvature measures local failure of the expected utility maximization axioms
• Expected utility without continuity: a comment on Delbaen et al. (2011)
• Expected utility theory with probability grids and preference formation
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• A set of axioms for the utility theory with rational probabilities
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• scientific article; zbMATH DE number 2108697 (Why is no real title available?)
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• scientific article; zbMATH DE number 2204521 (Why is no real title available?)
• Prospect theory for continuous distributions: a preference foundation
• Continuous linear utility for preferences on convex sets in normed real vector spaces
• Lipschitz Bernoulli Utility Functions
• The expected utility of portfolios of assets
• Anticipated utility: A measure representation approach

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