Ivanenko, Victor and Pasichnichenko, Illia (2016): Expected utility for nonstochastic risk. Forthcoming in: Mathematical Social Sciences
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Abstract
Stochastic random phenomena considered in von Neumann – Morgenstern utility theory constitute only a part of all possible random phenomena (Kolmogorov (1986)). We show that any sequence of observed consequences generates a corresponding sequence of frequency distributions, which in general does not have a single limit point but a nonempty closed limit set in the space of finitely additive probabilities. This approach to randomness allows to generalize the expected utility theory in order to cover decision problems under nonstochastic random events. We derive the maxmin expected utility representation for preferences over closed sets of probability measures. The derivation is based on the axiom of preference for stochastic risk, i.e. the decision maker wishes to reduce a set of probability distributions to a single one. This complements Gilboa and Schmeidler’s (1989) consideration of the maxmin expected utility rule with objective treatment of multiple priors.
Item Type:  MPRA Paper 

Original Title:  Expected utility for nonstochastic risk 
Language:  English 
Keywords:  expected utility, risk, mass phenomena, statistical regularity, nonstochastic randomness, multiple prior 
Subjects:  C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C10  General D  Microeconomics > D8  Information, Knowledge, and Uncertainty > D81  Criteria for DecisionMaking under Risk and Uncertainty 
Item ID:  75947 
Depositing User:  Illia Pasichnichenko 
Date Deposited:  04 Jan 2017 09:42 
Last Modified:  08 Oct 2019 17:49 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/75947 
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Expected utility for nonstochastic risk. (deposited 03 Apr 2016 16:03)
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