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Axiomatization of a Preference for Most Probable Winner


Blavatskyy, Pavlo R (2005). Axiomatization of a Preference for Most Probable Winner. Working paper series / Institute for Empirical Research in Economics No. 230, University of Zurich.

Abstract

In binary choice between discrete outcome lotteries, an individual may prefer lottery L1 tonlottery L2 when the probability that L1 delivers a better outcome than L2 is higher than thenprobability that L2 delivers a better outcome than L1. Such a preference can be rationalizednby three standard axioms (solvability, convexity and symmetry) and one less standard axiom (a fanning-in). A preference for the most probable winner can be represented by a skewsymmetric 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 isnreplaced with a preference for a win. The empirical evidence supporting the proposed systemnof axioms is discussed.

Abstract

In binary choice between discrete outcome lotteries, an individual may prefer lottery L1 tonlottery L2 when the probability that L1 delivers a better outcome than L2 is higher than thenprobability that L2 delivers a better outcome than L1. Such a preference can be rationalizednby three standard axioms (solvability, convexity and symmetry) and one less standard axiom (a fanning-in). A preference for the most probable winner can be represented by a skewsymmetric 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 isnreplaced with a preference for a win. The empirical evidence supporting the proposed systemnof axioms is discussed.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:February 2005
Deposited On:29 Nov 2011 22:32
Last Modified:12 Aug 2017 12:57
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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