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Bernoulli Without Bayes: A Theory of Utility-Sophisticated Preferences under Ambiguity

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Author Info
Klaus Nehring () (Department of Economics, University of California Davis)
Abstract

A decision-maker is utility-sophisticated if he ranks acts according to their expected utility whenever such comparisons are meaningful. We characterize utility sophistication in cases in which probabilistic beliefs are not too imprecise, and show that in these cases utility-sophisticated preferences are completely determined by consequence utilities and event attitudes captured by preferences over bets. The Anscombe-Aumann framework as employed in the classical contributions of Schmeidler (1989) and Gilboa-Schmeidler (1989) can be viewed as an important special case. For the class of utility sophisticated preferences with sufficiently precise beliefs, we also propose a definition of revealed probabilistic beliefs that overcomes the limitations of existing definitions.

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Paper provided by Institute for Advanced Study, School of Social Science in its series Economics Working Papers with number 0072.

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Length: 64 pages
Date of creation: May 2006
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Handle: RePEc:ads:wpaper:0072

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Related research
Keywords: Expected Utility; Ambiguity; Probalistic Sophistication; Revealed Probabilistic Beliefs;

Find related papers by JEL classification:
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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  18. Ghirardato, Paolo & Maccheroni, Fabio & Marinacci, Massimo, 2004. "Differentiating ambiguity and ambiguity attitude," Journal of Economic Theory, Elsevier, vol. 118(2), pages 133-173, October. [Downloadable!] (restricted)
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