Abstract
ithout the Independence Axiom, a weaker substitution axiom, “ADI,” is
necessary for the preferences over money lotteries induced by the money metric
utility function to be well behaved. Given ADI, the agent’s preferences over manygood lotteries can be reconstructed from knowledge of preferences over money lotteries and over sure multivariate outcomes. Moreover, other substitution properties
of underlying many-good lottery preferences are inherited by the money lottery
preferences. We analyze the formal and intuitive nature of ADI and conclude that
analysis of choice under uncertainty without AD1 cannot be one dimensional.
Journal of Economic Literature Classification Numbers: D80, Dgl.
necessary for the preferences over money lotteries induced by the money metric
utility function to be well behaved. Given ADI, the agent’s preferences over manygood lotteries can be reconstructed from knowledge of preferences over money lotteries and over sure multivariate outcomes. Moreover, other substitution properties
of underlying many-good lottery preferences are inherited by the money lottery
preferences. We analyze the formal and intuitive nature of ADI and conclude that
analysis of choice under uncertainty without AD1 cannot be one dimensional.
Journal of Economic Literature Classification Numbers: D80, Dgl.
| Original language | English |
|---|---|
| Pages (from-to) | 313-337 |
| Number of pages | 25 |
| Journal | Journal of Economic Theory |
| Volume | 56 |
| Publication status | Published - 1992 |