Expected Utility from Multinomial Second-order Probability Distributions
David Sundgren · Polibits · 2010
We consider the problem of maximizing expected utility when utilities and probabilities are given by discrete probability distributions so that expected utility is a discrete stochastic variable.As for discrete second-order distributions, that is probability distributions where the variables are themselves probabilities, the multinomial family is a reasonable choice at least if first-order probabilities are interpreted as relative frequencies.We suggest a decision rule that reflects the uncertainty present in distribution-based probabilities and utilities and we show an example of this rule in action with multinomial second-order distributions.