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Risk and Expected Utility Theory

Authors: Robin Pope; Reinhard Selten;

Risk and Expected Utility Theory

Abstract

The paper re-expresses and complements arguments against the normative validity of expected utility theory in Robin Pope (1983, 1991a, 1991b, 1985, 1995, 2000, 2001, 2005,2006, 2007). The objections concern the neglect of the evolving stages of knowledge ahead (stages of what the future will bring) when such evolution is fundamental to an experience of risk. This neglect entails a disregard of emotional and financial effects on well-being before a particular risk is resolved. Problems of the time structure of risk are investigated in a simple temporal framework restricted to a subclass of temporal lotteries in the sense of David Kreps and Evan Porteus (1978). This subclass is narrow but wide enough to discuss basic issues. It will be shown that there are serious objections against the modification of expected utility theory axiomatised by Kreps and Porteus (1978, 1979). By contrast the umbrella theory proffered by Pope that she has now termed SKAT, the Stages of Knowledge Ahead Theory, offers an epistemically consistent framework within which to construct particular models to deal with particular decision situations. A model by Caplin and Leahy (2001) will also be discussed and contrasted with the modelling within SKAT (Pope, Leopold and Leitner 2006).

Keywords

Entscheidung bei Risiko, ddc:330, Kritik, Erwartungsnutzen, Theorie

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
0
Average
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