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The Handbook of Rational and Social Choice$
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Paul Anand, Prasanta Pattanaik, and Clemens Puppe

Print publication date: 2009

Print ISBN-13: 9780199290420

Published to Oxford Scholarship Online: May 2009

DOI: 10.1093/acprof:oso/9780199290420.001.0001

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Expected Utility Theory *

Expected Utility Theory *

The Handbook of Rational and Social Choice

Simon Grant

Timothy Van Zandt

Oxford University Press

This chapter reviews classic normative expected utility theory. The goal is to frame the subsequent chapters (which consider more modern extensions to and deviations from this classic theory) in a way that is accessible to the nonspecialist but also useful to the specialist. The chapter starts from scratch with a revealed preference approach to the existence of a utility function. It then presents the mathematical structure of additive and linear utility representations and their axiomatizations, in the context of abstract choice theory and using intertemporal choice as a source of examples. The chapter is thus able to focus on this mathematical structure without interference the specific interpretation and notation for decision under uncertainty. Furthermore, this approach allows the chapter to focus on the interpretation of the axioms when it turns to decision under uncertainty.

Keywords:   expected utility, independence axioms, additive utility, linear utility, sure‐thing principle

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