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An Essential Analogy Between Coherent Previsions of Random Gains and Well-Behaved Preferences

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  • Angelini Pierpaolo
  • Angela De Sanctis

Abstract

We deal with a unified approach to an integrated and simplified formulation of the decision-making theory in its two subjective components, probability and utility. We show a choice model based on an application of fundamental microeconomic principles to the two-dimensional convex set of all coherent previsions of two random gains. Such a model is well-founded because we find out an analogy between properties of well-behaved preferences and the ones of coherent previsions of random gains. Coherence properties of the notion of price or prevision of a random gain are based on economic criteria of the decision-making theory. In particular, additivity property of price tells us that our decision-maker is not risk-averse but he is risk-neutral. Therefore, the certain gain equivalent to a random gain coincides with a coherent price of this random gain.

Suggested Citation

  • Angelini Pierpaolo & Angela De Sanctis, 2019. "An Essential Analogy Between Coherent Previsions of Random Gains and Well-Behaved Preferences," International Journal of Statistics and Probability, Canadian Center of Science and Education, vol. 8(3), pages 1-46, November.
    • Handle: RePEc:ibn:ijspjl:v:8:y:2019:i:3:p:46
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    References listed on IDEAS

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    1. G. Coletti & D. Petturiti & B. Vantaggi, 2014. "Bayesian inference: the role of coherence to deal with a prior belief function," Statistical Methods & Applications, Springer;Società Italiana di Statistica, vol. 23(4), pages 519-545, November.
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    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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