Non-Expected Utility and Stochastic Dominance

  • Haim Levy
Part of the Studies in Risk and Uncertainty book series (SIRU, volume 12)


Most of the economic and finance models that deal with investment decision making under uncertainty are based on the expected utility paradigm. However, experimental studies have shown that subjects often behave in a manner that runs counter to expected utility maximization. Such inconsistencies have been shown to be mainly due to violation of the independent axiom (called also the interchangeability axiom, see Chapter 2). In this chapter, we discuss some of the violations of the expected utility model (for a fuller account, see Machina, [1982 and 1983]1), and review the modified of the expected utility theory, the generalized expected utility or non-expected utility theory, as well as the competing models that have been developed in order to avoid these violations.


Utility Function Utility Theory Prospect Theory Stochastic Dominance Expect Utility Theory 
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Copyright information

© Springer Science+Business Media New York 1998

Authors and Affiliations

  • Haim Levy
    • 1
  1. 1.The Hebrew University of JerusalemIsrael

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