CFDP 746

An Axiomatization of Utility and Subjective Probability Based on Objective Probability

Author(s): 

Publication Date: April 1985

Pages: 26

Abstract: 

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.

Keywords: 

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

JEL Classification Codes: 026, 022