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Additive-Belief-Based Preferences

Author

Listed:
  • David Dillenberger

    (University of Pennsylvania)

  • Collin Raymond

    (Purdue University)

Abstract

We introduce a new class of preferences — which we call additive-belief-based (ABB) —that captures a general and yet tractable approach to belief-based utility, and that encompasses many popular models in the behavioral literature. We show that the general class of ABB preferences and two prominent special cases, which allow utility to depend on each period’s beliefs but not on changes in beliefs across periods, are fully characterized by suitable relaxations of the standard Independence axiom. We identify the intersection of ABB preferences with the class of recursive preferences and characterize attitudes towards the timing of resolution of uncertainty for ABB preferences. Our approach helps to better understand, in terms of testable predictions, existing models and leads to new models that can accommodate previously uncaptured behavioral patterns.

Suggested Citation

  • David Dillenberger & Collin Raymond, 2019. "Additive-Belief-Based Preferences," PIER Working Paper Archive 20-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 13 Jul 2020.
    • Handle: RePEc:pen:papers:20-020
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    More about this item

    Keywords

    Anticipatory utility; Compound lotteries; Preferences over beliefs; Recursive preferences; Resolution of uncertainty;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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