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Reconciling support theory and the book-making principle

Author: Diecidue, Enrico ; La-Ornual, DolchaiINSEAD Area: Decision SciencesIn: Journal of Risk and Uncertainty, vol. 38, no. 3, June 2009 Language: EnglishDescription: p. 173-190.Type of document: INSEAD ArticleNote: Please ask us for this itemAbstract: Support theory postulates that an individual's probability judgment for a particular event depends on the description of that event. We analyze decisions based on such a premise and demonstrate the theory's incompatibility with popular models of choice under uncertainty. In particular, we show how support theory's subjective probabilities are at odds with multi-prior beliefs in addition to additive and nonadditive probabilities. We propose a behavioral relaxation of a well-known consistency argument - the book-making principle, in order to accommodate such description-dependent subjective probabilities. As a consequence, we provide a characterization of a set of decisions where the underlying probability judgments follow from support theory. This result offers a unique way for using description dependent subjective probabilities as consistent inputs for decision analysis and can aid the design of elicitation procedures.
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Support theory postulates that an individual's probability judgment for a particular event depends on the description of that event. We analyze decisions based on such a premise and demonstrate the theory's incompatibility with popular models of choice under uncertainty. In particular, we show how support theory's subjective probabilities are at odds with multi-prior beliefs in addition to additive and nonadditive probabilities. We propose a behavioral relaxation of a well-known consistency argument - the book-making principle, in order to accommodate such description-dependent subjective probabilities. As a consequence, we provide a characterization of a set of decisions where the underlying probability judgments follow from support theory. This result offers a unique way for using description dependent subjective probabilities as consistent inputs for decision analysis and can aid the design of elicitation procedures.

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