Skip to main content
SpringerLink
Log in

Alternatives to Expected Utility: Foundations

  • Chapter
Handbook of Utility Theory

Abstract

In the last twenty-five years, an enormous amount of work has been done to develop new decision theories which can accommodate patterns of choice that contravene expected utility theory. This chapter surveys some of the main approaches that have been taken by these alternatives to expected utility theory.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 299.00
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 379.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 379.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Allais, M. (1953). Le comportement de l’homme rationnel devant le risque: Critique des postulats et axiomes de l’école américaine. Econometrica, 21:503–546.

    Article  Google Scholar 

  • Allais, M. (1979). The Foundations of a Positive Theory of Choice Involving Risk and a Criticism of the Postulates and Axioms of the American School. In Allais, M. and Hagen, O., editors, Expected Utility Hypotheses and the Allais Paradox, pages 27–145. Reidel, Dordrecht. Paper first published in French in 1953.

    Google Scholar 

  • Anscombe, F. J. and Aumann, R. (1963). A Definition of Subjective Probability. Annals of Mathematical Statistics, 34:199–205.

    Article  Google Scholar 

  • Becker, G. M., DeGroot, M. H., and Marschak, J. (1963). Stochastic Models of Choice behavior. Behavioral Science, 8:41–55.

    Article  Google Scholar 

  • Becker, J. L. and Sarin, R. K. (1987). Lottery Dependent Utilty. Management Science, 33:1367–1382.

    Article  Google Scholar 

  • Bell, D. (1982). Regret in Decision Making under Uncertainty. Operations Research, 30:961–981.

    Article  Google Scholar 

  • Bell, D. (1985). Disappointment in Decision Making under Uncertainty. Operations Research, 33:1–27.

    Article  Google Scholar 

  • Binmore, K. (1994). Playing Fair. MIT Press, Cambridge, Mass.

    Google Scholar 

  • Camerer, C. (1995). Individual Decision Making. In Kagel, J. and Roth, A. E., editors, Handbook of Experimental Economics, pages 587–703. Princeton University Press, Princeton.

    Google Scholar 

  • Camerer, C. and Weber, M. (1992). Recent Developments in Modeling Preferences: Uncertainty and Ambiguity. Journal of Risk and Uncertainty, 5:325–370.

    Article  Google Scholar 

  • Chew, S. H. (1983). A Generalization of the Quasilinear Mean with Applications to the Measurement of Income Inequality and Decision Theory Resolving the Allais Paradox. Econometrica, 51:1065–92.

    Article  Google Scholar 

  • Chew, S. H. (1985). An Axiomatization of the Rank Dependent Quasilinear Mean Generalizing the Gini Mean and the Quasilinear Mean. Unpublished manuscript, Johns Hopkins University, Baltimore.

    Google Scholar 

  • Chew, S. H. (1989). Axiomatic Utility Theories with the Betweenness Property. Annals of Operations Research, 19:273–298.

    Article  Google Scholar 

  • Chew, S. H., Epstein, L. G., and Segal, U. (1991). Mixture Symmetry and Quadratic Utility. Econometrica, 59:139–163.

    Article  Google Scholar 

  • Chew, S. H., Kami, E., and Safra, Z. (1987). Risk Aversion in the Theory of Expected Utility with Rank Dependent Probabilities. Journal of Economic Theory, 42:370–381.

    Article  Google Scholar 

  • Chew, S. H. and MacCrimmon, K. (1979). Alpha-Nu Choice Theory: A Generalization of Expected Utility Theory. Working Paper 669, University of British Columbia.

    Google Scholar 

  • Choquet, G. (1953–54). Theory of Capacities. Annales de l’Institut Fourier, 5:131–295.

    Article  Google Scholar 

  • Cubitt, R. P. (1996). Rational Dynamic Choice and Expected Utility Theory. Oxford Economic Papers, 48:1–19.

    Article  Google Scholar 

  • Cubitt, R. P., Starmer, C, and Sugden, R. (1998). Dynamic Choice and the Common Ratio Effect: An Experimental Investigation. Economic Journal, 108:1–19.

    Article  Google Scholar 

  • de Finetti, B. (1937). La prévision: Ses lois logiques, ses sources subjective. Annals de l’Institut Henri Poincare, 7:1–68.

    Google Scholar 

  • Dekel, E. (1986). An Axiomatic Characterization of Preferences Under Uncertainty: Weakening the Independence Axiom. Journal of Economic Theory, 40:304–318.

    Article  Google Scholar 

  • Ellsberg, D. (1961). Risk, Ambiguity, and the Savage Axioms. Quarterly Journal of Economics, 75:643–669.

    Article  Google Scholar 

  • Fishburn, P. C. (1978). On Handa’s “New Theory of Cardinal Utility” and the Maximization of Expected return. Journal of Political Economy, 86:321–324.

    Article  Google Scholar 

  • Fishburn, P. C. (1982). Nontransitive Measurable Utility. Journal of Mathematical Psychology, 26:31–67.

    Article  Google Scholar 

  • Fishburn, P. C. (1983). Transitive Measurable Utility. Journal of Economic Theory, 31:293–317.

    Article  Google Scholar 

  • Fishburn, P. C. (1984). Dominance in SSB Utility Theory. Journal of Economic Theory, 34:130–148.

    Article  Google Scholar 

  • Fishburn, P. C. (1989). Non-Transitive Measurable Utility for Decision Under Uncertainty. Journal of Mathematical Economics, 18:187–207.

    Article  Google Scholar 

  • Friedman, M. and Savage, L. J. (1948). The Utility Analysis of Choices Involving Risk. Journal of Political Economy, 56:279–304.

    Article  Google Scholar 

  • Gauthier, D. (1986). Morals by Agreement. Oxford University Press, Oxford.

    Google Scholar 

  • Gilboa, I. and Schmeidler, D. (1995). Case-Based Decision Theory. Quarterly Journal of Economics, 110:605–639.

    Article  Google Scholar 

  • Grant, S. (1995). Subjective Probability without Monotonicity: Or How Machina’s Mom May Also Be Probabilistically Sophisticated. Econometrica, 63:159–189.

    Article  Google Scholar 

  • Grant, S., Kajii, A., and Polak, B. (1992). Many Good Choice Axioms: When Can Many-Good Lotteries Be Treated as Money Lotteries? Journal of Economic Theory, 56:313–337.

    Article  Google Scholar 

  • Green, J. R. and Jullien, B. (1988). Ordinal Independence in Nonlinear Utility Theory. Journal of Risk and Uncertainty, 1:355–387.

    Article  Google Scholar 

  • Gul, F. (1991). A Theory of Disappointment Aversion. Econometrica, 59:667–686.

    Article  Google Scholar 

  • Hagen, O. (1979). Towards a Positive Theory of Preferences under Risk. In Allais, M. and Hagen, O., editors, Expected Utility Hypotheses and the Allais Paradox, pages 271–302. Reidel, Dordrecht.

    Google Scholar 

  • Hammond, P. J. (1988). Consequentialist Foundations for Expected Utility. Theory and Decision, 25:25–78.

    Article  Google Scholar 

  • Handa, J. (1977). Risk, Probabilities and a New Theory of Cardinal Utility. Journal of Political Economy, 85:97–122.

    Article  Google Scholar 

  • Harless, D. W. (1992). Actions Versus Prospects: The Effects of Problem Representation on Regret. American Economic Review, 82:634–649.

    Google Scholar 

  • Harless, D. W. and Camerer, C. (1994). The Predictive Utility of Generalized Expected Utility Theories. Econometrica, 62:1251–1289.

    Article  Google Scholar 

  • Herstein, I. N. and Milnor, J. (1953). An Axiomatic Approach to Measurable Utility. Econometrica, 21:291–297.

    Article  Google Scholar 

  • Hey, J. D. and Orme, C. (1994). Investigating Generalizations of Expected Utility Theory Using Experimental Data. Econometrica, 62:1291–1326.

    Article  Google Scholar 

  • Hirshleifer, J. and Riley, J. G. (1992). The Analytics of Uncertainty and Information. Cambridge University Press, Cambridge.

    Book  Google Scholar 

  • Kahneman, D. and Tversky, A. (1979). Prospect Theory: An Analysis of Decision Under Risk. Econometrica, 47:263–291.

    Article  Google Scholar 

  • Karni, E. and Safra, Z. (1989). Ascending Bid Auctions with Behaviorally Consistent Bidders. Annals of Operations Research, 19:435–446.

    Article  Google Scholar 

  • Karni, E. and Safra, Z. (1990). Behaviorally Consistent Optimal Stopping Rules. Journal of Economic Theory, 51:391–402.

    Article  Google Scholar 

  • Kavka, G. S. (1983). The Toxin Puzzle. Analysis, 43:33–36.

    Google Scholar 

  • Keynes, J. M. (1921). A Treatise on Probability. Macmillan, London.

    Google Scholar 

  • Knetsch, J. L. (1989). The Endowment Effect and Evidence of Nonreversible Indifference Curves. American Economic Review, 79:1277–1284.

    Google Scholar 

  • Knetsch, J. L. and Sinden, J. A. (1984). Willingness to Pay and Compensation Demanded: Experimental Evidence of an Unexpected Disparity in Measures of value. Quarterly Journal of Economics, 99:507–521.

    Article  Google Scholar 

  • Loewenstein, G. and Adler, D. (1995). A Bias in the Prediction of Tastes. Economic Journal, 105:929–937.

    Article  Google Scholar 

  • Loonies, G., Starmer, C., and Sugden, R. (1991). Observing Violations of Transitivity by Experimental Methods. Econometrica, 59:425–439.

    Article  Google Scholar 

  • Loonies, G., Starmer, C., and Sugden, R. (1992). Are Preferences Monotonic? Testing Some Predictions of Regret Theory. Economica, 59:17–33.

    Article  Google Scholar 

  • Loomes, G. and Sugden, R. (1982). Regret Theory: An Alternative Theory of Rational Choice Under Uncertainty. Economic Journal, 92:805–824.

    Article  Google Scholar 

  • Loomes, G. and Sugden, R. (1986). Disappointment and Dynamic Consistency in Choice Under Uncertainty. Review of Economic Studies, 53:271–282.

    Article  Google Scholar 

  • Loomes, G. and Sugden, R. (1987). Some Implications of a More General Form of Regret Theory. Journal of Economic Theory, 41:270–287.

    Article  Google Scholar 

  • Loomes, G. and Sugden, R. (1995). Incorporating a Stochastic Element Into Decision Theories. European Economic Review, 39:641–648.

    Article  Google Scholar 

  • Luce, R. D. and Fishburn, P. C. (1991). Rank-and Sign-Dependent Linear Utility Models for Finite First-Order Gambles. Journal of Risk and Uncertainty, 4:29–59.

    Article  Google Scholar 

  • Machina, M. J. (1982). “Expected Utility” Analysis Without the Independence Axiom. Econometrica, 50:277–323.

    Article  Google Scholar 

  • Machina, M. J. (1983). The Economic Theory of Individual Behavior Toward Risk: Theory, Evidence and New Directions. Center for Research on Organizational Efficiency, Stanford University. Technical Report No. 433.

    Google Scholar 

  • Machina, M. J. (1989). Dynamic Consistency and Non-Expected Utility Models of Choice Under Uncertainty. Journal of Economic Literature, 27:1622–1688.

    Google Scholar 

  • Machina, M. J. (1991). Dynamic Consistency and Non-Expected Utility. In Bacharach, M. and Hurley, S., editors, Foundations of Decision Theory, pages 39–91. Basil Blackwell, Oxford.

    Google Scholar 

  • Machina, M. J. and Schmeidler, D. (1992). A More Robust Definition of Subjective Probability. Econometrica, 60:745–780.

    Article  Google Scholar 

  • Malinvaud, E. (1952). Note on von Neumann-Morgenstern’s Strong Independence Axiom. Econometrica, 20:679.

    Article  Google Scholar 

  • Markowitz, H. M. (1952). The Utility of Wealth. Journal of Political Economy, 60:151–158.

    Article  Google Scholar 

  • Markowitz, H. M. (1959). Portfolio Selection. Wiley, New York.

    Google Scholar 

  • Marschak, J. (1950). Rational Behavior, Uncertain Prospects, and Measurable Utility. Econometrica, 18:111–141.

    Article  Google Scholar 

  • McClennen, E. F. (1990). Rationality and Dynamic Choice: Foundational Explorations. Cambridge University Press, Cambridge.

    Book  Google Scholar 

  • Payne, J. W., Bettman, J. R., and Johnson, E. J. (1992). Behavioral Decision Research: A Constructive Processing Perspective. Annual Review of Psychology, 43:87–131.

    Article  Google Scholar 

  • Prelec, D. (1998). The Probability Weighting function. Econometrica, 66:497–527.

    Article  Google Scholar 

  • Quiggin, J. (1982). A Theory of Anticipated Utility. Journal of Economic Behavior and Organization, 3:323–343.

    Article  Google Scholar 

  • Quiggin, J. (1994). Regret Theory with General Choice Sets. Journal of Risk and Uncertainty, 8:153–165.

    Article  Google Scholar 

  • Ramsey, F. P. (1931). Truth and Probability. In Braithwaite, R.B., editor, The Foundations of Mathematics and Other Logical Essays, pages 156–198. Harcourt and Brace, New York.

    Google Scholar 

  • Rothschild, M. and Stiglitz, J. E. (1970). Increasing Risk: A Definition. Journal of Economic Theory, 2:225–243.

    Article  Google Scholar 

  • Rubinstein, A. (1988). Similarity and Decision-Making Under Risk. (Is There a Utility Theory Resolution to the Allais Paradox?). Journal of Economic Theory, 46:145–153.

    Article  Google Scholar 

  • Samuelson, P. A. (1952). Probability, Utility, and the Independence Axiom. Econometrica, 20:670–678.

    Article  Google Scholar 

  • Sarin, R. K. and Wakker, P. (1992). A Simple Axiomatization of Nonadditive Expected Utility. Econometrica, 60:1255–1272.

    Article  Google Scholar 

  • Sarin, R. K. and Weber, M. (1993). Risk-Value Models. European Journal of Operational Research, 70:135–149.

    Article  Google Scholar 

  • Savage, L. J. (1954). The Foundations of Statistics. Wiley, New York.

    Google Scholar 

  • Schmeidler, D. (1989). Subjective Probability and Expected Utility without Additivity. Econometrica, 57:571–587.

    Article  Google Scholar 

  • Segal, U. (1987). The Ellsberg Paradox and Risk Aversion: An Anticipated Utility Approach. International Economic Review, 28:175–202.

    Article  Google Scholar 

  • Segal, U. (1988). Does the Preference Reversal Phenomenon Necessarily Contradict the Independence Axiom? American Economic Review, 78:233–236.

    Google Scholar 

  • Segal, U. (1989). Axiomatic Representation of Expected Utility with Rank-Dependent Probabilities. Annals of Operations Research, 19:359–373.

    Article  Google Scholar 

  • Segal, U. and Spivak, A. (1990). First Order Versus Second Order Risk Aversion. Journal of Economic Theory, 51:111–125.

    Article  Google Scholar 

  • Simon, H. A. (1957). Models of Man. Wiley, New York.

    Google Scholar 

  • Starmer, C. (1992). Testing New Theories of Choice Under Uncertainty Using the Common Consequence Effect. Review of Economic Studies, 59:813–830.

    Article  Google Scholar 

  • Starmer, C. (1999). Cycling with Rules of Thumb: An Experimental Test for a New Form of Non-Transitive Behaviour. Theory and Decision, 46:141–158.

    Article  Google Scholar 

  • Starmer, C. and Sugden, R. (1989). Violations of the Independence Axiom in Common Ratio Problems: An Experimental Test of Some Competing Hypotheses. Annals of Operations Research, 19:79–102.

    Article  Google Scholar 

  • Starmer, C. and Sugden, R. (1993). Testing For Juxtaposition and Event-Splitting Effects. Journal of Risk and Uncertainty, 6:235–254.

    Article  Google Scholar 

  • Sugden, R. (1986). New Developments in the Theory of Choice Under Uncertainty. Bulletin of Economic Research, 38:1–24.

    Article  Google Scholar 

  • Sugden, R. (1991). Rational Choice: A Survey of Contributions From Economics and Philosophy. Economic Journal, 101:751–785.

    Article  Google Scholar 

  • Sugden, R. (1993). An Axiomatic Foundation For Regret Theory. Journal of Economic Theory, 60:159–180.

    Article  Google Scholar 

  • Tversky, A. (1969). Intransitivity of Preferences. Psychological Review, 76:31–48.

    Article  Google Scholar 

  • Tversky, A. (1977). Features of Similarity. Psychological Review, 84:327–352.

    Article  Google Scholar 

  • Tversky, A. and Kahneman, D. (1986). Rational Choice and the Framing of Decisions. Journal of Business, 59:251–278.

    Article  Google Scholar 

  • Tversky, A. and Kahneman, D. (1991). Loss Aversion in Riskless Choice: A Reference Dependent Model. Quarterly Journal of Economics, 106:1039–1061.

    Article  Google Scholar 

  • Tversky, A. and Kahneman, D. (1992). Advances in Prospect Theory: Cumulative Representation of Uncertainty. Journal of Risk and Uncertainty, 5:297–323.

    Article  Google Scholar 

  • Tversky, A. and Wakker, P. (1995). Risk Attitudes and Decision Weights. Econometrica, 63:1255–1280.

    Article  Google Scholar 

  • Viscusi, W. K. (1989). Prospective Reference Theory: Toward an Explanation of the Paradoxes. Journal of Risk and Uncertainty, 2:235–264.

    Article  Google Scholar 

  • von Neumann, J. and Morgenstern, O. (1947). Theory of Games and Economic Behavior. Princeton University Press, Princeton, 2nd edition. 3rd edition published in 1953.

    Google Scholar 

  • Wakker, P. (1990). Under Stochastic Dominance Choquet-Expected Utility and Anticipated Utility are Identical. Theory and Decision, 29:119–132.

    Article  Google Scholar 

  • Wakker, P. and Tversky, A. (1993). An Axiomatization of Cumulative Prospect Theory. Journal of Risk and Uncertainty, 7:147–176.

    Article  Google Scholar 

  • Yaari, M. E. (1987). The Dual Theory of Choice Under Risk. Econometrica, 55:95–115.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. University of East Anglia, Norwich, UK

    Robert Sugden

Authors
  1. Robert Sugden
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. Universitat Autònoma de Barcelona, Spain

    Salvador Barberà

  2. Stanford University, USA

    Peter J. Hammond

  3. Christian-Albrechts-Universität zu Kiel, Germany

    Christian Seidl

Rights and permissions

Reprints and permissions

Copyright information

© 2004 Springer Science+Business Media New York

About this chapter

Cite this chapter

Sugden, R. (2004). Alternatives to Expected Utility: Foundations. In: Barberà, S., Hammond, P.J., Seidl, C. (eds) Handbook of Utility Theory. Springer, Boston, MA. https://doi.org/10.1007/978-1-4020-7964-1_1

Download citation

  • DOI: https://doi.org/10.1007/978-1-4020-7964-1_1

  • Publisher Name: Springer, Boston, MA

  • Print ISBN: 978-1-4419-5417-6

  • Online ISBN: 978-1-4020-7964-1

  • eBook Packages: Springer Book Archive

Publish with us

Policies and ethics

Search

Navigation