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Subjective Expected Utility Theory without States of the World

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  • Edi Karni

Abstract

This paper develops an axiomatic theory of decision making under uncertainty that dispenses with the state space. The results are subjective expected utility models with unique, action-dependent, subjective probabilities, and a utility function defined over wealth-effect pairs that is unique up to positive linear transformation.

Suggested Citation

  • Edi Karni, 2005. "Subjective Expected Utility Theory without States of the World," Economics Working Paper Archive 523, The Johns Hopkins University,Department of Economics.
    • Handle: RePEc:jhu:papers:523
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    References listed on IDEAS

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    1. Costis Skiadas, 1997. "Conditioning and Aggregation of Preferences," Econometrica, Econometric Society, vol. 65(2), pages 347-368, March.
    2. Karni, Edi, 1996. "Probabilities and Beliefs," Journal of Risk and Uncertainty, Springer, vol. 13(3), pages 249-262, November.
    3. Gilboa,Itzhak & Schmeidler,David, 2001. "A Theory of Case-Based Decisions," Cambridge Books, Cambridge University Press, number 9780521802345.
    4. Itzhak Gilboa & David Schmeidler, 2004. "Subjective Distributions," Theory and Decision, Springer, vol. 56(4), pages 345-357, January.
    5. James A. Mirrlees, 1976. "The Optimal Structure of Incentives and Authority Within an Organization," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 105-131, Spring.
    6. Chambers,Robert G. & Quiggin,John, 2000. "Uncertainty, Production, Choice, and Agency," Cambridge Books, Cambridge University Press, number 9780521785235.
    7. Luce, R Duncan & Krantz, David H, 1971. "Conditional Expected Utility," Econometrica, Econometric Society, vol. 39(2), pages 253-271, March.
    8. Karni, Edi, 2007. "Foundations of Bayesian theory," Journal of Economic Theory, Elsevier, vol. 132(1), pages 167-188, January.
    9. Oliver Hart & Bengt Holmstrom, 1986. "The Theory of Contracts," Working papers 418, Massachusetts Institute of Technology (MIT), Department of Economics.
    10. Wakker, Peter, 1987. "Subjective probabilities for state dependent continuous utility," Mathematical Social Sciences, Elsevier, vol. 14(3), pages 289-298, December.
    11. Itzhak Gilboa, 1993. "Hempel, Good and Bayes," Discussion Papers 1045, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    12. Karni Edi, 1993. "Subjective Expected Utility Theory with State-Dependent Preferences," Journal of Economic Theory, Elsevier, vol. 60(2), pages 428-438, August.
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    Citations

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    Cited by:

    1. Simon Grant & John Quiggin, 2005. "Learning and Discovery," Risk & Uncertainty Working Papers WP7R05, Risk and Sustainable Management Group, University of Queensland.
    2. Edi Karni, 2008. "Agency theory: choice-based foundations of the parametrized distribution formulation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 36(3), pages 337-351, September.
    3. Dino Borie, 2016. "Expected Multi-Utility Representations by "Simplex" with Applications," GREDEG Working Papers 2016-10, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    4. Edi Karni, 2011. "A theory of Bayesian decision making with action-dependent subjective probabilities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(1), pages 125-146, September.
    5. Urmee Khan & Martin Dumav, 2018. "Moral Hazard, Uncertain Technologies, and Linear Contracts," Working Papers 201806, University of California at Riverside, Department of Economics.
    6. Dumav, Martin & Khan, Urmee, 2018. "Moral hazard with non-additive uncertainty: When are actions implementable?," Economics Letters, Elsevier, vol. 171(C), pages 110-114.
    7. Edi Karni, 2005. "A New Approach to Modeling Decision-Making under Uncertainty and Defining Subjective Probabilities," Economics Working Paper Archive 519, The Johns Hopkins University,Department of Economics.
    8. Blume, Lawrence & Easley, David & Halpern, Joseph Y., 2021. "Constructive decision theory," Journal of Economic Theory, Elsevier, vol. 196(C).
    9. Edi Karni, 2009. "A Theory of Bayesian Decision Making," EIEF Working Papers Series 0904, Einaudi Institute for Economics and Finance (EIEF), revised May 2009.
    10. Edi Karni, 2007. "Bayesian Decision Theory and the Representation of Beliefs," Levine's Bibliography 321307000000000776, UCLA Department of Economics.
    11. Vassili Vergopoulos, 2011. "Dynamic consistency for non-expected utility preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(2), pages 493-518, October.
    12. Pope, Robin, 2006. "Multiple Periods Destroy the Axiomatic Base of Expected Utility Theory and its Standard Generalisations," Bonn Econ Discussion Papers 30/2006, University of Bonn, Bonn Graduate School of Economics (BGSE).
    13. Edi Karni, 2009. "A theory of medical decision making under uncertainty," Journal of Risk and Uncertainty, Springer, vol. 39(1), pages 1-16, August.
    14. Karni, Edi, 2009. "A reformulation of the maxmin expected utility model with application to agency theory," Journal of Mathematical Economics, Elsevier, vol. 45(1-2), pages 97-112, January.
    15. Agastya, Murali & Slinko, Arkadii, 2015. "Dynamic choice in a complex world," Journal of Economic Theory, Elsevier, vol. 158(PA), pages 232-258.
    16. Svetlana Boyarchenko & Sergei Levendorskii, 2005. "Discount factors ex post and ex ante, and discounted utility anomalies," Microeconomics 0510013, University Library of Munich, Germany, revised 13 Dec 2005.
    17. Martin Dumav, 2021. "Moral Hazard, Dynamic Incentives, and Ambiguous Perceptions," Papers 2110.15229, arXiv.org.
    18. Pope, Robin & Leitner, Johannes & Leopold-Wildburger, Ulrike, 2009. "Expected utility versus the changes in knowledge ahead," European Journal of Operational Research, Elsevier, vol. 199(3), pages 892-901, December.

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