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Cobb-Douglas Preferences under Uncertainty

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  • Faro, José Heleno

Abstract

This paper axiomatizes Cobb-Douglas preferences under uncertainty. First, we extend the original Trockel (Econ Lett 30:7–10, 1989 )’s axiomatic foundation to a general state space framework based on the Strong Homotheticity Axiom, obtaining also the incomplete case a la Bewley (Decis Econ Financ 25:79–110, 2002 ). We show that this key axiom for the Cobb-Douglas expected utility specification is refuted by Ellsberg’s uncertainty aversion behavioral pattern. Our main result provides a set of meaningful axioms characterizing Cobb-Douglas min-expected utility preferences, an important class of uncertainty averse preferences for studying the consequences of ambiguity in finance and other fields. Finally, we present briefly how to obtain more general representations like the variational case. Copyright Springer-Verlag Berlin Heidelberg 2013

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Paper provided by Insper Working Paper, Insper Instituto de Ensino e Pesquisa in its series Insper Working Papers with number wpe_278.

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Date of creation: Oct 2012
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Handle: RePEc:ibm:ibmecp:wpe_278

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Cited by:
  1. Eisei Ohtaki & Hiroyuki Ozaki, 2013. "Monetary Equilibria and Knightian Uncertainty," Keio/Kyoto Joint Global COE Discussion Paper Series 2012-032, Keio/Kyoto Joint Global COE Program.
  2. Maria Gabriella Graziano & Claudia Meo & Nicholas C. Yannelis, 2013. "Stable Sets for Asymmetric Information Economies," CSEF Working Papers 333, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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