See also Kreps, Notes on the Theory of Choice. Note that one of these two restrictions are required in order to specifically prevent infinite expected utility. So if a lottery spits out infinite expected utility, you broke something in the VNM axioms.

For anyone who's interested, a quick and dirty explanation is that the preference relation is primitive, and we're trying to come up with an index (a utility function) that reproduces the preference relation. In the case of certainty, we want a function U:O->R where O is the outcome space and R is the real... (read more)

Open thread, January 25- February 1

by NancyLebovitz 1 min read25th Jan 2014318 comments

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If it's worth saying, but not worth its own post (even in Discussion), then it goes here.