Theory and Decision

, Volume 49, Issue 3, pp 223–234

Reconciliation with the Utility of Chance by Elaborated Outcomes Destroys the Axiomatic Basis of Expected Utility Theory


DOI: 10.1023/A:1026520128623

Cite this article as:
Pope, R. Theory and Decision (2000) 49: 223. doi:10.1023/A:1026520128623


Expected utility theory does not directly deal with the utility of chance. It has been suggested in the literature (Samuelson, 1952, Markowitz, 1959) that this can be remedied by an approach which explicitly models the emotional consequences which give rise to the utility of chance. We refer to this as the elaborated outcomes approach. It is argued that the elaborated outcomes approach destroys the possibility of deriving a representation theorem based on the usual axioms of expected utility theory. This is shown with the help of an example due to Markowitz. It turns out that the space of conceivable lotteries over elaborated outcomes is too narrow to permit the application of the axioms. Moreover it is shown that a representation theorem does not hold for the example.

Utility of chance Elaborated outcomes Axiomatised expected utility theory Representation theorem 

Copyright information

© Kluwer Academic Publishers 2000

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of TennesseeTennesseeUSA

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