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Comonotonic book-making with nonadditive probabilities

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Author Info
Diecidue, E.
Wakker, P.P. (Tilburg University, Center for Economic Research)

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Abstract

This 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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Publisher Info
Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 76.

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Date of creation: 2000
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Handle: RePEc:dgr:kubcen:200076

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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 and Programming - - - General

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  1. Wakker, Peter P & Thaler, Richard H & Tversky, Amos, 1997. "Probabilistic Insurance," Journal of Risk and Uncertainty, Springer, vol. 15(1), pages 7-28, October. [Downloadable!] (restricted)
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This page was last updated on 2009-11-25.

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