An extension of a theorem of von Neumann and Morgenstern with an application to social choice theory

We present an analytical framework and an axiomatic theory of behavior unde r risk that constitutes an extension of the theory of von Neumann and Morge nstern. The extension entails a relaxation of the mixture space structure o f the decision set and requires the restriction of the independence axiom o f expected utility theory. We begin with an application to social choice th eory which yields an extension of Harsanyi's impartial observer theorem to the case in which individual preferences do not necessarily satisfy the axi oms of expected utility theory. An application to game theory is also discu ssed. (C) 2000 Elsevier Science S.A. All rights reserved.