This research was supported by Grants SES0236882 and SES0214050 from the National Science Foundation. We thank the editor and three anonymous referees for their suggestions and comments. We thank Mihai Manea for excellent research assistance.
Random Expected Utility
Article first published online: 13 DEC 2005
Volume 74, Issue 1, pages 121–146, January 2006
How to Cite
Gul, F. and Pesendorfer, W. (2006), Random Expected Utility. Econometrica, 74: 121–146. doi: 10.1111/j.1468-0262.2006.00651.x
- Issue published online: 13 DEC 2005
- Article first published online: 13 DEC 2005
- Manuscript received July, 2003; final revision received June, 2005.
- Random utility;
- random choice;
- expected utility
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).