Luc Lauwers: Backward Expectation

Lecture by Luc Lauwers (KU Leuven), organized by the Centre for Philosophy, Politics and Economics

Two-stage lotteries are lotteries that have one-stage lotteries as prizes. I address the question, in decision theory, of how the value of two-stage lotteries should be assessed. I will promote the notion of backward expectation as a unifying principle for evaluating one-, two-, and multi-stage lotteries. If the reduced form of the two-stage lottery, i.e., the one-stage lottery of final prizes and compound probabilities, has a well defined expected value, then the backward expectation operator returns this value. Examples of two-stage lotteries the reduced form of which have no well defined expected value are discussed.​