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By Jacques H. Drèze (eds.)

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It is argued by Dreze and Modigliani [6] 2 that this is an unsatisfactory procedure, their main argument being that the expected values of yield and future income are unobservable magnitudes ex ante. They therefore introduce two alternative reference criteria based on (1) constant market value, and (2) constant expected utility. Let ( Y2 , r) denote an uncertain prospect, and let ( Y2*, r*) be a sure prospect serving as a reference criterion. In the cases discussed above Y2 * and r* are simply equal to the expected values.

M (1971), pp. 414-29. [20] R. D. Luce, Individual Choice Behavior (New York: Wiley, 1959). [21] A. Madansky, 'Externally Bayesian Groups', Memorandum RM-4141-PR, The Rand Corporation, November 1964. [22] M. Markowitz, 'The Utility of Wealth', Journal of Political Economy, vo!. LX (1952), pp. 151-8. [23] J. Marschak, 'Money and the Theory of Assets', Econometrica, vo!. VI (1938), pp. 311-25. [24] J. Marschak, 'Rational Behaviour, Uncertain Prospects, and Measurable Utility', Econometrica, vo!. xvm (1950), pp.

Again, the expected utility of a' is equal to 0, with conditional expectations of - t given E and t given E. If the decision-maker is offered the choice between a and a', he will be indifferent between these two acts, and his expected utility will be equal to 0. Should he know whether E is true or not, he could choose a if E is true, a' if E is not true, with an expected utility oft in either case. Hence, information about E would have a utility value oft. IV. OBJECTIONS TO THE NORMATIVE APPEAL OF THE AXIOMS Although objections to the descriptive realism of the theory have been numerous, objections to its normative appeal have been addressed almost exclusively to the assumption regarding conditional preference.

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