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An explicit representation for disappointment aversion and other betweenness preferences

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  • Cerreia-Vioglio, Simone

    (Department of Decision Sciences, Università Bocconi)

  • Dillenberger, David

    (Department of Economics, University of Pennsylvania)

  • Ortoleva, Pietro

    (Department of Economics, Princeton University)

Abstract

One of the most well-known models of non-expected utility is Gul (1991)'s model of Disappointment Aversion. This model, however, is defined implicitly, as the solution to a functional equation; its explicit utility representation is unknown, which may limit its applicability. We show that an explicit representation can be easily constructed, using solely the components of the implicit one. We also provide a more general result: an explicit representation for preferences in the Betweenness class that also satisfy Negative Certainty Independence (Dillenberger, 2010) or its counterpart. We show how our approach gives a simple way to behaviorally identify the parameters of the representation and to study the consequences of disappointment aversion in a variety of applications.

Suggested Citation

  • Cerreia-Vioglio, Simone & Dillenberger, David & Ortoleva, Pietro, 2020. "An explicit representation for disappointment aversion and other betweenness preferences," Theoretical Economics, Econometric Society, vol. 15(4), November.
    • Handle: RePEc:the:publsh:3440
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    References listed on IDEAS

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    Cited by:

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    2. Fernando Payró Chew, 2022. "Mixture-Dependent Preference for Commitment," Working Papers 1365, Barcelona School of Economics.
    3. Evren, Özgür, 2019. "Recursive non-expected utility: Connecting ambiguity attitudes to risk preferences and the level of ambiguity," Games and Economic Behavior, Elsevier, vol. 114(C), pages 285-307.
    4. Alex Gershkov & Benny Moldovanu & Philipp Strack & Mengxi Zhang, 2023. "Optimal Insurance: Dual Utility, Random Losses, and Adverse Selection," American Economic Review, American Economic Association, vol. 113(10), pages 2581-2614, October.

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    More about this item

    Keywords

    Disappointment Aversion; Betweenness; Cautious Expected Utility; utility representation;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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