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A model of probabilistic choice satisfying first-order stochastic dominance

Blavatskyy, P.R. (2011) A model of probabilistic choice satisfying first-order stochastic dominance. Management Science, 57 (3). pp. 542-548.

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This paper presents a new model of probabilistic binary choice under risk. In this model, a decision maker always satisfies first-order stochastic dominance. If neither lottery stochastically dominates the other alternative, a decision maker chooses in a probabilistic manner. The proposed model is derived from four standard axioms (completeness, weak stochastic transitivity, continuity, and common consequence independence) and two relatively new axioms. The proposed model provides a better fit to experimental data than do existing models. The baseline model can be extended to other domains such as modeling variable consumer demand.

Item Type: Journal Article
Publisher: Institute for Operations Research and Management Sciences
Copyright: © 2011 INFORMS.
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