In expected utility theory, a lottery is a discrete distribution of probability on a set of states of nature.
The elements of a lottery correspond to the probabilities that each of the states of nature will occur, (e.g.
In economics, individuals are assumed to rank lotteries according to a rational system of preferences, although it is now accepted that people make irrational choices systematically.
Behavioral economics studies what happens in markets in which some of the agents display human complications and limitations.
[4] For example, let there be three outcomes that might result from a sick person taking either novel drug A or B for his condition: "Cured", "Uncured", and "Dead".
The paradox argued by Maurice Allais complicates expected utility in the lottery.
Plus, people tend to find some clues from the format or context of the lotteries.
[6] It was additionally argued that how much people got trained about statistics could impact the decision making in the lottery.
[7] Throughout a series of experiments, he concluded that a person statistically trained will be more likely to have consistent and confident outcomes which could be a generalized form.
The assumption about combining linearly the individual utilities and making the resulting number be the criterion to be maximized can be justified of the grounds of the independence axiom.