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The Sequential Dominance Argument for the Independence Axiom of Expected Utility Theory

J. Gustafsson

Published 2020 in Philosophy and Phenomenological Research

ABSTRACT

Independence is the condition that, if X is preferred to Y, then a lottery between X and Z is preferred to a lottery between Y and Z given the same probability of Z. Is it rationality required that one’s preferences conform to Independence? The main objection to this requirement is that it would rule out the alleged rationality of Allais and Ellsberg Preferences. In this paper, I put forward a sequential dominance argument with fairly weak assumptions for a variant of Independence (called Independence for Constant Prospects), which shows that Allais and Ellsberg Preferences are irrational. Hence this influential objection (that is, the alleged rationality of Allais and Ellsberg Preferences) can be rebutted. I also put forward a number of sequential dominance arguments that various versions of Independence are requirements of rationality. One of these arguments is based on very minimal assumptions, but the arguments for the versions of Independence which are strong enough to serve in the standard axiomatization of Expected Utility Theory need notably stronger assumptions.

PUBLICATION RECORD

  • Publication year

    2020

  • Venue

    Philosophy and Phenomenological Research

  • Publication date

    2020-05-05

  • Fields of study

    Economics

  • Identifiers
    DOI 10.1111/phpr.12669
  • External record

    Open on Semantic Scholar

  • Source metadata

    Semantic Scholar

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