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A general theory of subjective mixtures

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  • Ghirardato, Paolo
  • Pennesi, Daniele

Abstract

We provide, and characterize behaviorally, a framework for constructing subjective mixtures which requires neither the Certainty Independence nor the Monotonicity axiom, replacing them with much weaker “local” properties. As we also show by means of examples, this framework provides a purely subjective foundation to most of the recent preference models which employ the Anscombe-Aumann setting. It also allows a subjective formulation of a preference for ambiguity hedging, and as a consequence allows the distinction of the notions of ambiguity aversion and preference for randomization.

Suggested Citation

  • Ghirardato, Paolo & Pennesi, Daniele, 2020. "A general theory of subjective mixtures," Journal of Economic Theory, Elsevier, vol. 188(C).
    • Handle: RePEc:eee:jetheo:v:188:y:2020:i:c:s0022053120300545
    DOI: 10.1016/j.jet.2020.105056
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    Cited by:

    1. Paolo Ghirardato & Daniele Pennesi, 2023. "Randomizing without randomness," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(4), pages 1009-1037, May.
    2. Borie, Dino, 2023. "Purely subjective revealed ambiguity," Journal of Mathematical Economics, Elsevier, vol. 108(C).

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    More about this item

    Keywords

    Subjective mixture space; Ambiguity aversion; Preference for randomization;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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