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Author Info
Alaoui, Larbi

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Abstract

There are many situations in which individuals do not expect to find out which outcome will occur. The standard vNM Expected Utility model is inappropriate in these cases, since it does not distinguish between lotteries for which the outcomes are observed by the agent and lotteries for which they are not. This paper provides an axiomatic model which makes this distinction, and which admits preferences for observing the outcome as well as preferences for remaining in doubt. This framework can accommodate behavioral patterns that are inconsistent with the vNM model, and that have motivated the development of models that differ significantly from the standard vNM framework. In particular, this framework accommodates self-handicapping, in which an agent chooses to impair his own performance. It also admits a status quo bias, without having recourse to framing effects. Several other examples are provided. In one example, voters prefer to remain ignorant, and as the importance of the relevant issues increases, their incentive to acquire information decreases.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11411.

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Date of creation: 31 Mar 2009
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Handle: RePEc:pra:mprapa:11411

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Related research
Keywords: Decision theory; Value of information; Doubt; Unobserved outcomes; Unresolved lotteries;

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Find related papers by JEL classification:
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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References listed on IDEAS
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  2. Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
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  5. Dillenberger, David, 2008. "Preferences for One-Shot Resolution of Uncertainty and Allais-Type Behavior," MPRA Paper 8342, University Library of Munich, Germany. [Downloadable!]
  6. Diecidue, Enrico & Wakker, Peter P, 2001. " On the Intuition of Rank-Dependent Utility," Journal of Risk and Uncertainty, Springer, vol. 23(3), pages 281-98, November. [Downloadable!] (restricted)
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  7. Kreps, David M & Porteus, Evan L, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Econometrica, Econometric Society, vol. 46(1), pages 185-200, January. [Downloadable!] (restricted)
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  9. Grant, S & Kajii, A & Polak, B, 1997. "Temporal Resolution of Uncertainty and Recursive Non-Expected Utility Models," Papers 324, Australian National University - Department of Economics.
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  10. David Dillenberger, 2008. "Preferences for One-Shot Resolution of Uncertainty and Allais-Type Behavior," PIER Working Paper Archive 08-036, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
  11. Bénabou, Roland & Tirole, Jean, 2007. "Identity, Dignity and Taboos: Beliefs as Assets," CEPR Discussion Papers 6123, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  12. Andrew Caplin & John Leahy, 2001. "Psychological Expected Utility Theory And Anticipatory Feelings," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 55-79, February. [Downloadable!] (restricted)
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  13. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December. [Downloadable!] (restricted)
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  20. Olivier Compte & Andrew Postlewaite, 2004. "Confidence-Enhanced Performance," American Economic Review, American Economic Association, vol. 94(5), pages 1536-1557, December. [Downloadable!]
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  21. Akerlof, George A & Dickens, William T, 1982. "The Economic Consequences of Cognitive Dissonance," American Economic Review, American Economic Association, vol. 72(3), pages 307-19, June. [Downloadable!] (restricted)
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  24. Segal, Uzi, 1990. "Two-Stage Lotteries without the Reduction Axiom," Econometrica, Econometric Society, vol. 58(2), pages 349-77, March. [Downloadable!] (restricted)
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  25. Samuelson, William & Zeckhauser, Richard, 1988. " Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
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