Expected Utility Maximization Under Weakened Assumptions Consistent With Behavioral Economics

While expected utility maximization and its foundations in the Savage Axioms play a major role in normative economics and Bayesian statistics, the axiomatic foundations of expected utility maximization have been the subject of extensive criticism over the years in terms of their descriptive ability to explain actual behavior in laboratory experiments. As a result, behavioral economists do not accept expected utility maximization as descriptive of observed consumer behavior. But the Savage Axioms have been substantially weakened and rendered more widely descriptive of observed behavior by replacing the usual Riemann integral with the Choquet [14] integral. In addition, the observed behavior under the weakened assumptions is relevant to behavior under uncertainty in the Frank Knight [47] sense, rather than the more restrictive context of behavior under risk with known probabilities.