An Axiomatic Approach to Measurable Utility 1..N. Herstein; John Milnor Econometrica, Vol. 21, No. 2. (Apr., 1953), pp. 291-297. Stable URL http: /link.jstor-org/sici%sici=0012-9682% 28 195304% 2921 %3A2%3C29 1 %3AAAATMUG3E2.0.CO%3B2-S Econometrica is currently published by The Feonometrie Society, Your use of the ISTOR archive indicates your acceptance of JSTOR’s Terms and Conditions of Use, available at bhupulwww.jstororg/about/terms.hunl. JSTOR’s Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of « journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial us. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at hupulwww jstor-org/journals/econosoe htm Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission, JSTOR is an independent not-for-profit organization dedicated to ereating and preserving a digital archive of scholarly journals. For more information regarding JSTOR, please contact support @jstor.org, upswwwjstororg/ Fri Nov 17 11:24:11 2006AN AXIOMATIC APPROACH TO MEASURABLE UTILITY By I, N. Hersreiy ap Joun Muxon's* 1, nerropverioy ‘Tue coxcerr of a measurable utility, that is, of real-valued function, appropriately linear with respect to probability distributions, measuring an individual's preference ratings, is by no means a new one, tracing its origin as far back as Bernoulli and his “moral expectation.” However, ‘a completely rigorous formulation and treatment of the existence of such a utility, on the basis of a well-defined set of conditions or postt- Intes, was completely lacking until the arrival of von Neumann and Morgenstern’s Theory of Games and Economic Behavior (6). In order to find a set of axioms that would be more acceptable (to some economists), and to have a simpler derivation mathematically from these axioms, Marschak [2] attacked the subject again. However, in his paper Mar- schak considered only the case of a finite number of sure prospects. Rubin [4] extended the Marschak system to the case of an infinite num- ber of sure prospects. Herstein [1] and Milnor (3] gave quite different axiom sets for this problem and succeeded in simplifying and shortening, the mathematical details considerably. However, topological considera- tions of the prospect space entered into the axioms. In this paper we remove considerations of the topology of the prospect space itself, ‘weaken the previous axioms, and allow an infinite number of sure pros- pects; in doing so the treatment actually becomes simpler and more ‘transparent. On the basis of these axioms the existence of a measurable utility is established 2. NomaTION In the body of this paper the following notation system is employed: (a) capital script Latin letters will always denote sets; (b) lower case italic letters will always denote elements of sets; (c) lower case Greek letters will always denote real numbers whose values are between 0 and 1, with end values also possible; and (d) 8 = [2 | P} will denote the set of x having the property P. * Research of the first author was supported by a eontract between the Cowles Commission for Research in Beonomies and the Office of Naval Research. Resoareh. of the second author was supported by The RAND Corporation. ‘Tia urtile will ‘be reprinted as Covlea Commission Paper, New Series, No. 65, # The authors are deeply indebted to Gerard Debreu for his suggestions and helpful comments, 201292 1. N. HERSTEIN AND JOHN MILNOR 3. mmm axtoms A set 8 is said to be a mixture set if for any a, be $ and for any w we can associate another element, which we write as ua + (1 — u)b, which is again in 8, and where ® at —I=a, (2) pa + (1 — w)b = (1 — wb + ya, 8) Naw + = Wb + =) = QW + = db, for all a, b ¢8 and all d, w. ‘A convex set in a real vector space, where we mean by wa + (1 — u)b the usual multiplication by sealars and the addition of elements of this vector space, is easily sebn to be a mixture set. ‘The concept of a preference ordering arises naturally in certain phases of economics. We formalize the concept and make the following Derinrrion: A binary relation, %, defined on a set 8 is a complete ordering if 0 Sor any a,b €S, either « > b or b & a must hold, Gi) Wa, b,ceSanda> b,b > cthena de. ‘The simultaneous satisfaction of a % band b X a need not imply that is identical with b. This prompts us to make the following Dorusrmon: If a, b, €8, then a ~ b (read: ais indifferent or equiv: lent to b) if and only if both a & band b & a. The following three properties then hold: “@ ana, B) a ~ bimplies b ~ a, © a~b,b~cimply a~c for any a, b,c € 8, Let I(a) = {x ¢ 8 | x ~ a}. Properties A, B, C of ~ imply that the distinet 1(a)’s yield a decomposition of into mutually disjoint subsets. ‘We call I(a) the indifference set of a. Tha & b but a¢ 1(b), we say that a > b. A real valued funetion w defined on a completely ordered set 8 is called order-preserving if, for any a,b € 8, u(a) > u(b) if and only if a > b. A real-valued function » defined on a mixture set 37 is said to he linear if, for all a, b e 3%, and any a, vfea + (1 = a)b] = ao(a) + (1 = @) v(6).