Subjective Expected

The expected utility (EU) hypothesis was originally formulated to be used with specified or “objective” probabilities. Objectively expected utility is the subject of Chapter 5. Not all uncertainty, however, can be described by a specified or objective probability distribution. The pioneering work of Frank Ramsey (1926) and Bruno de Finetti (1937, 1949) demonstrated how, under certain assumptions, “subjective” probabilities could still be inferred from behaviour in the face of such uncertainty. The task of this chapter is to set out some recent developments in this decision-theoretic approach to subjective probability, and in the closely associated theory of subjectively expected utility. As in Chapter 5, an explicitly “consequentialist” perspective will be maintained. A much more thorough survey of earlier developments can be found in Fishburn (1981) — see also Karni and Schmeidler (1991) and Fishburn (1994).