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Random Expected Utility

Faruk Gul and Wolfgang Pesendorfer
Econometrica
Vol. 74, No. 1 (Jan., 2006), pp. 121-146
Published by: The Econometric Society
Stable URL: http://www.jstor.org/stable/3598925
Page Count: 26
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Random Expected Utility
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Abstract

We develop and analyze a model of random choice and random expected utility. A decision problem is a finite set of lotteries that describe the feasible choices. A random choice rule associates with each decision problem a probability measure over choices. A random utility function is a probability measure over von Neumann-Morgenstern utility functions. We show that a random choice rule maximizes some random utility function if and only if it is mixture continuous, monotone (the probability that a lottery is chosen does not increase when other lotteries are added to the decision problem), extreme (lotteries that are not extreme points of the decision problem are chosen with probability 0), and linear (satisfies the independence axiom).

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