Abstract
This article presents a descriptive theory for complex choice problems. In line with the bounded rationality assumption, we hypothesize that decision makers modify a complex choice into some coarse approximations, each of which is a binary lottery. We define the value of a best coarse approximation to be the utility of the choice. Using this paradigm, we axiomatize and justify a new utility function called thecoarse utility function. We show that the coarse utility function approximates the rank-and sign-dependent utility function. It satisfies dominance but admits violations of independence. It reduces judgmental load and allows flexible judgmental information. It accommodates phenomena associated with probability distortions and provides a better resolution to the St. Petersburg paradox than the expected and rank-dependent theories.
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Liu, L., Shenoy, P.P. A theory of coarse utility. J Risk Uncertainty 11, 17–49 (1995). https://doi.org/10.1007/BF01132729
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DOI: https://doi.org/10.1007/BF01132729