Econometrica: Jan 2006, Volume 74, Issue 1

Random Expected Utility
p. 121-146

Faruk Gul, Wolfgang Pesendorfer

We develop and analyze a model of random choice and random expected utility. A  is a finite set of lotteries that describe the feasible choices. A associates with each decision problem a probability measure over choices. A is a probability measure over von Neumann–Morgenstern utility functions. We show that a random choice rule maximizes some random utility function if and only if it is , (the probability that a lottery is chosen does not increase when other lotteries are added to the decision problem), (lotteries that are not extreme points of the decision problem are chosen with probability 0), and (satisfies the independence axiom).

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Supplemental Material

Supplement to Random Expected Utility

In this supplement to Gul and Pesendorfer (2005), we extend the analysis of that paper to non-regular random utility functions. We also provide examples that demonstrate the independence of the assumptions in Gul and Pesendorfer (2005) and provide a detailed discussion of the related literature. Specifically, we relate our results to the work of McFadden and Richter (1971), Clark (1995) and Falmagne (1978).

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