An Axiomatization of Utility and Subjective Probability Based on Objective Probability

This paper provides an axiomatic model based on an extraneous random device generating objective probabilities for the derivation of expected utilities and subjective probabilities. Four basic axioms fully determine a real-valued utility function and a finitely additive subjective probability measure. The restrictions of these axioms to lotteries depending only upon events of the random device yield the von Neumann-Morgenstern axioms.

JEL Classification: 026, 022

Keywords: Real-world event, auxiliary event, Objective probabilities, Subjective probabilities, von Neumann-Morgenstern axioms