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Present the model of individual choice under uncertainty. What are the five assumptions which guarantee that...

Present the model of individual choice under uncertainty. What are the five assumptions which guarantee that an individual's preferences admit an expected utility function representation?

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Answer #1

Assumptions which guarantee that an individual's preferences admit an expected utility function:

  • INDEPENDENCE Assumption between the different outcomes?.
  • Different possible outcomes.
  • Probabilities with outcomes.
  • Choice between taking Risk( gambling) and avoiding Risk.
  • For Knowing the actual possible Payoffs.
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