An Essential Analogy Between Coherent Previsions of Random Gains and Well-Behaved Preferences


  •  Angelini Pierpaolo    
  •  Angela De Sanctis    

Abstract

We deal with a unified approach to an integrated and simplified formulation of the decision-making theory in its two subjective components, probability and utility. We show a choice model based on an application of fundamental microeconomic principles to the two-dimensional convex set of all coherent previsions of two random gains. Such a model is well-founded because we find out an analogy between properties of well-behaved preferences and the ones of coherent previsions of random gains. Coherence properties of the notion of price or prevision of a random gain are based on economic criteria of the decision-making theory. In particular, additivity property of price tells us that our decision-maker is not risk-averse but he is risk-neutral. Therefore, the certain gain equivalent to a random gain coincides with a coherent price of this random gain.



This work is licensed under a Creative Commons Attribution 4.0 License.
  • ISSN(Print): 1927-7032
  • ISSN(Online): 1927-7040
  • Started: 2012
  • Frequency: bimonthly

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