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Unformatted text preview: volves a procedural aspect of decision making. The axiomatization of a family of preference relations provides justication for focusing on that specic family. Von Neumann-Morgenstern Axiomatization The version of the von Neumann-Morgenstern axiomatization pre-sented here uses two axioms, the independence and continuity ax-ioms. The Independence Axiom In order to state the rst axiom we require an additional concept, called Compound lotteries (g. 8.1): Given a K-tuple of lotteries ( p k ) and a K-tuple of nonnegative numbers ( k ) k = 1, ... , K that sum up to 1, dene K k = 1 k p k to be the lottery for which ( K k = 1 k p k )( z ) = K k = 1 k p k ( z ) . Verify that K k = 1 k p k is indeed a lottery. When only two lotteries p 1 and p 2 are involved, we use the notation 1 p 1 ( 1 1 ) p 2 ....
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This note was uploaded on 12/29/2011 for the course ECO 443 taught by Professor Aswa during the Fall '10 term at SUNY Stony Brook.
- Fall '10