Random Expected Utility

Authors

  • Faruk Gul,

    1. Dept. of Economics, Princeton University, Princeton, NJ 08544, U.S.A.
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  • Wolfgang Pesendorfer

    1. Dept. of Economics, Princeton University, Princeton, NJ 08544, U.S.A.; pesendor@princeton.edu
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    • 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.


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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