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Three Contributions to the Theory of Decision Under Uncertainty

Working Paper 558 | Published October 1, 1995

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Authors

Edward J. Green Senior Policy Advisor, Federal Reserve Bank of Chicago

In-Uck Park

Three Contributions to the Theory of Decision Under Uncertainty

Abstract

An intuitively natural consistency condition for contingent plans is necessary and sufficient for a contingent plan to be rationalized by maximization of conditional expected utility. One alternative theory of choice under uncertainty, the weighted-utility theory developed by Chew Soo Hong (1983) does not entail that contingent plans will generally satisfy this condition. Another alternative theory, the minimax theory as formulated by Savage (1972), does entail the consistency condition (at least for singleton-valued plans).