Chance theory: A separation of riskless and risky utility

Abstract In a temporal context, sure outcomes may yield higher utility than risky ones as they are available for the execution of plans before resolution uncertainty. By observing disproportionate preference certainty, empirical research points to fundamental difference between riskless and utility. Chance Theory (CT) accounts this and, in contrast earlier approaches separate utility, does not violate basic rationality principles like first-order stochastic dominance or transitivity. CT evaluates lowest outcome an act with v increments over that outcome, called chances, by subjective expected (EU) u . As consequence treating differently ones, is able explain EU-paradoxes Allais ( Econometrica, 21 (4): 503–546, 1953) rely on certainty effect, also critique EU put forward Rabin 68 (5): 1281–1292, 2000). Moreover, separates risk attitudes strong sense, captured entirely , from attitude towards wealth reflected solely through curvature