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Vector-Adjusted Expected Utility

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  • Marciano Siniscalchi

Abstract

This paper proposes a representation of (possibly) probabilistically unsophisticated preferences whereby (1) beliefs are jointly represented by a finitely additive probability measure and a vector-valued measure; (2) uncertain prospects are ranked according to the difference between a baseline expected utility evaluation and an adjustment term; and (3) the latter is the norm of the vector-valued expected utility of the prospect under consideration. Vector-valued measures are employed to represent the extent to which ambiguity about different events “cancels out” or “adds up”, as revealed by the decision maker’s preferences. The proposed representation, vector-adjusted expected utility (VEU), is shown to be consistent with the maxmin-expected utility model (MEU). A necessary and sufficient condition characterizing the class of VEU preferences within the MEU family of preferences is provided.

Suggested Citation

  • Marciano Siniscalchi, "undated". "Vector-Adjusted Expected Utility," Working Papers 191, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    • Handle: RePEc:igi:igierp:191
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    References listed on IDEAS

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    Cited by:

    1. Chen, Yan & Katuscak, Peter & Ozdenoren, Emre, 2007. "Sealed bid auctions with ambiguity: Theory and experiments," Journal of Economic Theory, Elsevier, vol. 136(1), pages 513-535, September.
    2. Marciano Siniscalchi, 2009. "Vector Expected Utility and Attitudes Toward Variation," Econometrica, Econometric Society, vol. 77(3), pages 801-855, May.
    3. Castagnoli, Erio & Maccheroni, Fabio & Marinacci, Massimo, 2002. "Insurance premia consistent with the market," Insurance: Mathematics and Economics, Elsevier, vol. 31(2), pages 267-284, October.
    4. Siniscalchi, Marciano, 2006. "A behavioral characterization of plausible priors," Journal of Economic Theory, Elsevier, vol. 128(1), pages 91-135, May.

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