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Reconciliating support theory and the book-making principle

Author: Diecidue, Enrico ; La-Ornual, DolchaiINSEAD Area: Decision Sciences Series: Working Paper ; 2008/12/DS Publisher: Fontainebleau : INSEAD, 2008.Language: EnglishDescription: 28 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: Support theory postulates that probability judgments for uncertain events depend on the description of events. We show that the theory violates basic consistency requirements for subjective probabilities and normative decision under uncertainty. We illustrate how support theory's incoherence stems from its assumption of non-extensionality rather than subadditivity. We propose a relaxation of the book-making principle, a famous consistency argument, and bridge the descriptively appealing support theory with normative criteria. In this manner we derive a unique way for using probability judgments from support theory as a consistent input for decision theory.
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Support theory postulates that probability judgments for uncertain events depend on the description of events. We show that the theory violates basic consistency requirements for subjective probabilities and normative decision under uncertainty. We illustrate how support theory's incoherence stems from its assumption of non-extensionality rather than subadditivity. We propose a relaxation of the book-making principle, a famous consistency argument, and bridge the descriptively appealing support theory with normative criteria. In this manner we derive a unique way for using probability judgments from support theory as a consistent input for decision theory.

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