Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/288401 
Authors: 
Year of Publication: 
2020
Citation: 
[Journal:] Annals of Operations Research [ISSN:] 1572-9338 [Volume:] 289 [Issue:] 2 [Publisher:] Springer US [Place:] New York, NY [Year:] 2020 [Pages:] 431-448
Publisher: 
Springer US, New York, NY
Abstract: 
This research note is concerned with static choices between alternative mixtures of lotteries with one common mixture component and identical mixture weights. It is shown that the common component induces a conditional preference relation on the underlying lottery space with given (unconditional) preference structure. Induced preferences of this type arise in the comparisons with which the independence axiom of expected utility theory is specifically concerned. Given a few obvious properties of the induced preferences, two basic results are obtained: first, the conditionalisation operation is an order-preserving isomorphism, and, secondly, if the conditional preferences satisfy stochastic dominance preference, they necessarily violate the independence axiom. Together, the two results preclude any possibility of postulating independence consistently for static decision making under risk. The independence axiom is thus generally invalid as a normative principle of rational risky choice.
Subjects: 
Rational choice
Risky choice
Normative theory
Expected utility
Independence axiom
JEL: 
D81
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.