ABSTRACT
Modern economics describes rational behavior by a small set of axioms that ensure the logical consistency of choices. Von Neumann and Morgenstern (1947) pioneered this approach for choices under risk, with objective probabilities, and Savage (1954) extended it to choices under uncertainty, with subjective probabilities. The main achievement of the axiomatic approach is to allow the derivation, for each individual, of a unique ordered set of preferences, the expected utility (EU), which can be defined prior to knowing each particular choice set. Consequently, the decision-making process is seen by economists as irrelevant for determining rational choices.
