# SFB 303 Discussion Paper No. B - 449

**Author**: Pope, Robin

**Title**: Reconciliation with the Utility of Chance by Elaborated Outcomes
Destroys the Axiomatic Basis of Expected Utility Theory

**Abstract**: Expected utility theory does not directly deal with the utility of
chance. It has
been suggested in the literature (Samuelson 1952, Markowitz 1959) that this
can be
remedied by an approach which explicitly models the emotional consequences
which give rise to the utility of chance. We refer to this as the elaborated
outcomes
approach.
It is argued that the elaborated outcomes approach destroys the possibility
of
deriving a representation theorem based on the usual axioms of expected
utility
theory. This is shown with the help of an example due to Markowitz. It turns
out
that the space of conceivable lotteries over elaborated outcomes is too
narrow to
permit the application of the axioms. Moreover it is shown that a
representation
theorem does not hold for the example.

**Keywords**: Utility of chance, elaborated outcomes, axiomatised expected utility
theory,
representation theorem

**JEL-Classification-Number**: D81

**Creation-Date**: February 1999

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