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Axiomatization of a Preference for Most Probably Winner

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  • Pavlo Blavatskyy

Abstract

In binary choice between discrete outcome lotteries, an individual may prefer lottery L1 to lottery L2 when the probability that L1 delivers a better outcome than L2 is higher than the probability that L2 delivers a better outcome than L1. Such a preference can be rationalized by three standard axioms (completeness, continuity and first order stochastic dominance) and two less standard ones (weak independence and a fanning-in). A preference for the most probable winner can be represented by a skew-symmetric bilinear utility function. Such a utility function has the structure of a regret theory when lottery outcomes are perceived as ordinal and the assumption of regret aversion is replaced with a preference for a win. The empirical evidence supporting the proposed system of axioms is discussed.

Suggested Citation

  • Pavlo Blavatskyy, 2004. "Axiomatization of a Preference for Most Probably Winner," CERGE-EI Working Papers wp226, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp226
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    File URL: http://www.cerge-ei.cz/pdf/wp/Wp226.pdf
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    Cited by:

    1. Pavlo Blavatskyy, 2006. "Axiomatization of a Preference for Most Probable Winner," Theory and Decision, Springer, vol. 60(1), pages 17-33, February.

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    More about this item

    Keywords

    EUT; Axiomatization; Stochastic dominance; Betweenness; Weak independence; Fanning-in; Regret theory.;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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