Comonotonic Book-Making with Nonadditive Probabilities
AbstractThis paper shows how de Finetti's book-making principle, commonly used to justify additive subjective probabilities, can be modi-ed to agree with some nonexpected utility models.More precisely, a new foundation of the rank-dependent models is presented that is based on a comonotonic extension of the book-making principle.The extension excludes book-making only if all gambles considered induce a same rank-ordering of the states of nature through favorableness of their associated outcomes, and allows for nonadditive probabilities.Typical features of rank-dependence, hedging, ambiguity aversion, and pessimism and optimism, can be accommodated.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2000-76.
Date of creation: 2000
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Book-making; comonotonic; Choquet expected utility; ambiguity aversion; ordered vector space;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
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- Wakker, P.P. & Thaler, R.H. & Tversky, A., 1997.
1997-35, Tilburg University, Center for Economic Research.
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