Utility Theory without the Completeness Axiom

Author(s): Robert J. Aumann

Reviewed work(s):
our!e: Econometrica, "ol. #$% &o. # (Jul.% '()*)% pp. ++,-+)*
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Ec
on
o
m
et
ric
a,
Vo
l.
30
,
N
o.
3
(J
ul
y,
19
62
)
BY
ROBER
TJ.
AUMAN
N
A
utility
theory is developed that parallels the von Neumann-
Morgenstern
util
ity theory, but makes no use of the assumption that preferences are com-
ple
te
(i.e.,
that
any two
alternatives are comparable).
1.
INTRODUCTION
BEFORE
STARTINGout on an exposition
of
utility
theory without the
com-
pletene
ss axiom, let us briefly review the contents
of utility theory with
the
completene
ss
axiom-
the
b
y
now classical
utility
theo
ry
of
von
Neuma
nn
and Morgenstern [8]. This begins with an individual,
a
set A
o
f
"bas
ic
alternatives
"
(or "pure prospects" or "pure
outcomes")
and the set of
all
lotterie
s' whose prizes are basic alternatives from A. On this set of lotteries
there is defined a preference order, representing
the preferences of the
in-
dividu
al
in
question;
this preference order is
assumed
t
o
obe
y
certa
in
axioms
.2
The basic theorem of
utility
theory asserts
that
there then
exists
a real-
valued function u on the set of all lotteries,3
calle
d
a utility
function,
which enjoys the following properties:
(
a
)
u
represents
t
h
e
preference
order, in the
sens
e
that a
lottery
x
is
preferred to a lottery y if and only if u(x)
>
u(y); and
(
b
)
u
obey
s
t
h
e
"expect
ed
utilit
y
hypothesis
",4
accordi
ng
t
o
whi
ch
t
h
e
util
ity
of a
lottery is equal to the expected utility
of its
prizes
(for a
precise
statem
ent
se
e (2.1)).
Furthermor
e,
t
h
e
u
satisfyin
g
(a) and (b) is uniquely
determined up to an
additive and a
positive
multiplicati
ve
constant
.
446 ROBERT J.
AUMANN
examined the consequences of dropping
or modifying one or another of these
axioms. For example, Hausner's multi-
dimensional utilities [3] result from
dropping the so-called continuity axiom.
We are concerned here with another one
of the axioms, the completeness axiom.
This axiom says that given any pair of
lotteries,the individual eitherprefers
one to the other or is indifferent
between them. It specifically excludes the
possibility that an individual may be
willing and able to arrive at preference
decisions only for certain pairs of
lotteries, while for others he may be
unwilling or unable to arrive at a
decision;6 in mathematical phraseology,
the preference order is assumed to be
complete.7 It is the purpose of this paper
to present a varia-tion of the von
Neumann-Morgenstern theory which
makes no use of the completeness axiom.
This is the only essential difference
between our axioms and those of von
Neumann and Morgenstern.
Of all the axioms of utility theory, the
completeness axiom is perhaps the most
questionable.8 Like others of the axioms,
it is inaccurate as a descrip-tion of real
life; but unlike them, we find it hard to
accept even from the
normat
ive
viewpoint. Does
"rationality"
deman
d
that an
individual
ma
ke
definite preference comparisons between all possible lotteries (even
on
a
limited set of basic
alternatives)?
For
example, certain decisions
that
our
individ
ual
is asked to make might involve
highly hypothetical
situation
s,
which he will never face in real life; he might feel that he cannot
reach
an
"hones
t" decision in such cases. Other decision problems might be extremely
comple
x,
too
complex
for
intuitive
"insight,
"
and our
individual
mig
ht
prefer to make no decision at all in these problems.9 Or he might
be
willing
to make rough preference statements such as, "I prefer a cup of cocoa to a
75-25 lottery of
coffee
and
tea,
b
u
t
reverse my preference if
the
ratio
is
25-75"; but he
might
be
unwilling
to fix the break-
even point
betwe
en
coffee-
tea
lotteries and cocoa any more
precisely.l1 Is it "rational"
to
force
decisio
ns
in such
cases?
6 Indifference between two alternatives should not be confused with incomparability;
t
h
e former involves a positive decision that it is immaterial whether the one or the
other alternative is chosen, whereas the latter means that no decision is reached.
7
"Total,"
"connected,"
and "linear" are
sometimes
used
synonymously.
8
It should be noted that it is also assumed in the non-numerical indifference curve
approach to utility.
9
Cf. Section 5.
10 Utility theory is sometimes compared
to physics,
and it
is
assert
ed
that
the
phenomenon described above is nothing but a "limitation
of discriminatory
capacity"
which "cannot be any more serious as an
objection to the . .. theory than it would be in
the theory of physical measurement " [10, p.
182]. We feel that there is, after all, quite a
difference in the magnitude of the effects, and
that economic theory might be better served if
the quite considerable "limitation of
discriminatory capacity" would be explicitly
recognized.
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