From Outcomes to Acts: A Non-Standard Axiomatization of the Expected Utility Principle (original) (raw)
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JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. Experimental studies have shown that the key behavioral assumption of expected utilitv theory. the so-called independence axiom," tends to be si,stematicallv violated in practice. Such findings would lead us to question the empirical relevance of the large body of literature on the hehavior of economic agents untder uncertainty which uses expected utility analysis. The first purpose of this paper is to demonstrate that the basic concepts, tools, anid results of expected utility analysis do not depend on the independenec axiom, bLut may be derived from the much weaker assumption of smoothness of preferences over alternative probability distributions. The second purpose of the paper is to show that this approach may be used to construct a simple model of preferences which ties together a wide body of observed behavior toward risk, including the Friedman-Savage and Marko-witz observations, and both the Allais and St. Petersburg Paradoxes.
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